x
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: September 30, 2012

¨ TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from N/A to N/A

Commission file number: 000-27145

THE
SPENDSMART PAYMENTS COMPANY

(Exact Name of Registrant as Specified in
its Charter)

Colorado

33-0756798

(State or jurisdiction of incorporation
or organization)

(I.R.S. Employer Identification No.)

2680 Berkshire Parkway, Suite 130

Des Moines Iowa

50325

(Address and of principal executive offices)

(Zip Code)

(858) 677-0080

(Issuer’s telephone number, including
area code)

Common Stock, par value $0.001 per share

(Title of class)

Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o
No x

Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o
No x

Indicate by
check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No o

Indicate by
check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes x
No o

Indicate by
check mark if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form, and
no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K or any amendment to this Form 10-K. o

Indicate by
check mark if the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b(2) of the Exchange Act. (Check one).

Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The aggregate
market value of the voting and non-voting common equity on March 31, 2012 held by non-affiliates of the registrant (based on the
average bid and asked price of such stock on such date of $0.40) was approximately $21,151,751. Shares of common stock held by
each officer of the Company (or of its wholly-owned subsidiary) and director and by each person who owns 10% or more of the outstanding
common stock of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes. Without acknowledging that any individual director of
registrant is an affiliate, all directors have been included as affiliates with respect to shares owned by them.

At October 1, 2013, there were 10,356,423 shares
outstanding of the issuer’s common stock, par value $0.001 per share.

DOCUMENTS INCORPORATED BY
REFERENCE

None.

Explanatory Note to 10-K/A

This Amendment No. 1 hereby amends our Annual Report on Form
10-K (“Form 10-K/A”) for the years ended September 30, 2012 and 2011, which was originally filed with the Securities
and Exchange Commission on December 26, 2012 (the “Original 10-K”). This Amendment is being filed mainly to include
restated financial statements as described in Note 1, “Restatement of previously issued financial statements”, of the
Notes to the Consolidated Statements. The consolidated statements are being restated to correct accounting errors as follows:

On August 19, 2013, after consulting with the Company’s
Audit Committee, management concluded it had incorrectly calculated its historical volatility for the fiscal years ended September
30, 2012 and 2011. The error specifically related to an excel spreadsheet calculation whereby it was calculating a volatility that
was significantly higher than it should have been. The historical volatility is a key assumption and driver in determining the
valuation of the company’s stock based compensation and derivative liabilities. The impact of the change reduces the derivative
liabilities and stock based compensation as of and for the fiscal years ended September 30, 2012 and 2011 and the interim periods
within.

As part of the restatement process, the Company also corrected its roll-forward tables with respect to
the high and low bid prices per share of our common stock included in Item 5 of this Form 10-K/A and the number of options and
warrants outstanding at September 30, 2012 and 2011. The financial effects of correcting these tables were not significant, however
were included as part of the restatement.

In addition, the Company had previously concluded that they
did not maintain effective controls over financial reporting relating to the classification and reporting of financial instruments
and consequently that deficiency represented a material weakness over financial reporting as of September 30, 2012. The aforementioned
error constitutes an additional deficiency and therefore the Company’s assessment of internal control over financial reporting
as of September 30, 2012 has not changed.

The following sections of this Form 10-K/A have been amended
to reflect the restatement:

Part II - Item 7 - Management’s Discussion and Analysis
of Financial Condition and Result of Operations

For the convenience of the reader, this Form 10-K/A sets forth
the Company’s Original 10-K in its entirety, as amended by, and to reflect the restatement, as described above. Except
as discussed above, the Company has not modified or updated disclosures presented in this Amendment. Accordingly, this
Amendment does not reflect events occurring after the Original 10-K or modify or update those disclosures affected by subsequent
events, except as specifically referenced herein. Information not affected by the restatement is unchanged and reflects the disclosures
made at the time of the Filing of the Original 10-K.

This Form 10-K/A has been signed as of a current date and all
certifications of the Company’s Chief Executive Officer/Principal Executive Officer and Chief Financial Officer/Chief Accounting
Officer and Principal Financial Officer are given as of a current date. Accordingly, this Form 10-K/A should be read
in conjunction with the Company’s filings with the Securities and Exchange Commission subsequent to the filing of the Original
10-K, including any amendments to those filings.

In addition to
historical information, this Amended Annual Report on Form 10-K/A may contain statements relating to future results of The
SpendSmart Payments Company (including certain projections and business trends) that are “forward-looking
statements.” Our actual results may differ materially from those projected as a result of certain risks and
uncertainties. These risks and uncertainties include, but are not limited to, without limitation, statements that express or
involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future
events or performance (often, but not always, using words or phrases such as “expects” or “does not
expect”, “is expected”, “anticipates” or “does not anticipate”,
“plans”, “estimates” or “intends”, or stating that certain actions, events or results
“may”, “could”, “would”, “might” or “will” be taken, occur or be
achieved) are not statements of historical fact and may be “forward-looking statements.” Such
forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual
results or achievements of the Company to be materially different from any future results or achievements of the Company
expressed or implied by such forward-looking statements. Such factors include, among others, those set forth herein and those
detailed from time to time in our other Securities and Exchange Commission (“SEC”) filings. These forward-looking
statements are made only as of the date hereof, and we undertake no obligation to update or revise the forward-looking
statements, whether as a result of new information, future events or otherwise, except as otherwise required by law. The
Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date
made. The Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Also,
there can be no assurance that the Company will be able to raise sufficient capital to continue as a going concern.

Item 1 - Business

As used in this annual report, the terms
“we”, “us”, “our”, “The SpendSmart Payments Company”, and the “Company” means
The SpendSmart Payments Company, a Colorado corporation, its wholly-owned subsidiary The SpendSmart Payments Company, a California
corporation or their management.

Current Business

The SpendSmart Payments Company®
(“SSPC”) provides a simple, low-cost and convenient money management solution to young people under the supervision
and guidance of a responsible adult. Our product is designed to enable parents (and other responsible adults, henceforth collectively
referred to as parents) and young people to collaborate toward the goal of responsible spending. SSPC markets a prepaid card with
special features aimed at young people and their parents.

Market Overview and Business Model

We believe there is a compelling opportunity
available to our Company to address a pressing need young people have for responsible management of their finances while giving
parents visibility over such activity. Prepaid reloadable cards (“SSPC Cards”) are similar to financial institution
debit cards, without the need for a related account and potential credit risks. SSPC Cards offer significant advantages over cash
and/or the use by young people of their parent’s credit or debit card. For a comparatively small cost, SSPC Cards offer what
we believe are compelling features for young people and adults alike. Included among the features of our SSPC Cards are:

·

No credit implications from the use of the cards for either young people or parents;

·

No overdrafts or related fees;

·

Controllable transaction alerts to adults at times and frequencies determined by the parent;

·

Ability of the parent to quickly lock and unlock the card for transactions;

·

Money loaded on the card is protected if the card is lost and transferred to a new card;

·

Parents have the ability to transfer money quickly to the young person’s card in an emergency;
and

·

Parents have the ability to monitor their teen’s spending.

We believe the SSPC Card is an excellent
option allowing young people to be exposed to the financial world at an early age. Teaching young people how to spend within a
stipulated budget, SSPC Cards are accepted anywhere MasterCard™ is accepted. Under existing legislation, cardholders
are required to be 21 years old to be eligible for a regular credit card (if the parent does not guarantee the balance). SSPC Cards
allow young people 13 years and older to have the card in their own name without credit implications for a parent. SSPC Card cardholders
have other convenient options including the reloading of cards through direct deposit or automated fund transfer if desired.

Strategy

We plan to continue to introduce new features
to our product offerings that we hope will cause the public to associate SSPC with responsible youth spending. We plan to make
potential consumers aware of SSPC through marketing with endorsements from well-known personalities as well as (in the future)
joint promotional opportunities with providers of consumer products and services.

On November 20, 2012, we entered into an
endorsement agreement (the “Agreement”) for the promotion of our products. In connection with the Agreement, which is
for a term of fourteen months (unless extended as provided in the Agreement), we agreed to pay a non-refundable advance totaling
$3,750,000 (the “Advance”) of which $1,900,000 was paid on November 21, 2012 with the remainder of $1,850,000 due by
January 2, 2013. In addition to the Advance, we have agreed to pay monthly incentive compensation and royalty payments per
active account. The Advance is not recoupable from incentive compensation payments and is recoupable from royalty payments
made under the Agreement. Upon the expiration of the Agreement, the endorser will be entitled to receive the royalty
payments, subject to recoupment of the Advance, and the incentive compensation, in perpetuity. In addition, the endorser
may become entitled to warrants if the Agreement is extended and at the end of the term of the Agreement. The payments and
warrants described herein are described in further detail in Note 12 to the financial statements contained in Item 8 below.

The current bank that issues our SSPC cards
will not issue pre-paid cards that relate to any celebrity endorsements. We have entered into a letter of intent with another banking
institution that will issue our SSPC cards that are affiliated with celebrity endorsements. There can be no assurance that we will
enter into a final agreement with such bank or come to an agreement on financial terms that allows us to operate profitably. While
we anticipate entering into a final agreement with satisfactory financial terms with the bank in the near future, there is no guarantee
that we will be successful in doing so and may need to seek a relationship with another bank. If we are unable to enter into an
agreement with another bank that will issue our cards relating to celebrity endorsements, such inability will materially impact
our business.

3

Financial Model

Revenues from SSPC are derived from fees
from cardholders for various services we provide and fees we receive from merchants when our cards are used. The direct costs incurred
by us in connection with SSPC include discounts and per transaction charges from merchant credit card companies and amounts paid
to our processing partner for card issuance and transaction costs.

We continue to extensively employ outside
consultants for the build out and ongoing maintenance of the platform and payment system, as well as for marketing, design, business
development and other general and administrative functions of our Company. While we intend to restrict the number of new employees
we add to our Company’s workforce, we believe that new personnel will be necessary in the future in the areas of project
management, software programming, operations, accounting (in October 2012 we added a new Controller position, in November 2012
a new President, and in February 2013 a new CFO (to replace outgoing CFO Jonathan Shultz) and administration.

Barriers to Entry

Our Company has applied for patents in
connection with SSPC and its related uses and planned future features, one of which was recently issued. We believe that the business
processes in connection with SSPC are original to our Company; however we may discover that others have patent claims of which
we are currently unaware. Should we be successful in obtaining the grant of the patents under application and should we be successful
in countering any challenges to their validity that might emerge, the lifetime of the granted patents would be twenty years. Should
the patent applications in question be approved, it could give us a cost advantage from the license fees that future potential
competitors would be required to pay as well as revenues from said license fees. There can be no assurance however that we will
be successful in receiving such a patent or successful in countering any challenges thereto.

In addition, we are compliant with the
Children’s Online Privacy Protection Act (COPPA). The primary goal of
COPPA is to place parents in control over what information is collected from their young children online. COPPA applies to operators
of commercial websites and online services directed to children under 13, such as our service, that collect, use, or disclose personal
information from children, and operators of general audience websites or online services with actual knowledge that they are collecting,
using, or disclosing personal information from children under 13.
We are a certified licensee of the TRUSTe® Children’s Privacy Program, which has been approved by the Federal Trade Commission
as an authorized safe harbor under the Children’s Online Privacy Protection Rule.

Competitive Business Conditions

The market for prepaid cards is large,
growing and highly competitive. We have identified a number of providers of prepaid cards and related products and services.

Green Dot Corporation and NetSpend
Holdings, Inc. are leaders in marketing general-purpose reloadable prepaid cards. Both of these companies have as primary market
focuses under-banked consumers and tout their services as tailored to meet their customers’ particular financial services
needs in a manner that traditional banking institutions have historically not met. Both companies have built extensive distribution
networks throughout the US and have strong online presences. As of September 30, 2012, these companies’ filings with the
SEC stated active card totals of 4.42 million and 2.28 million, respectively. In addition to
a formidable active card user base, Green Dot is a leader in establishing a convenient way for cardholders to add funds to their
accounts. While neither company to our knowledge is currently specifically courting our identified target market of young people
and their parents, they both represent potential sources of future competition for our Company.

American ExpressTM is
a worldwide leader in the credit card and financial services industry whose credit cards account for a significant percentage of
the total volume of credit card transactions in the United States. American ExpressTM has a product named PASS
which is a prepaid reloadable card that “parents give to teens.” PASS has many of the features we offer and intend
to offer with our SSPC Card and American ExpressTM has devoted substantial resources to publicize this youth
oriented payment option. We believe that PASS has drawbacks not found in SSPC Cards, nevertheless American ExpressTM is
a world recognized brand with substantial marketing capabilities that is likely to provide formidable competition for our Company.

PayPalTM is a pioneer
provider of alternatives to credit card use for Internet and other purchases. PayPalTM facilitates transactions
between online buyers and sellers and first became popular for commerce interactions over online auction sites such as eBay
(eBay purchased PayPalTM in 2002). Users of PayPalTM establish accounts that are funded
by the customer, either through the customer’s credit card or a bank account. Upon establishment of the account, a customer
can designate that online payments be charged against his PayPalTM account balance. PayPalTM has
announced its intention to service the youth payment market through initiatives that would allow owners of PayPalTM accounts
to establish allowance accounts for others (e.g. children) that the parents can fund as desired. PayPalTM could
potentially present a strong challenge to the SSPC program given its substantial name recognition and financial strength.

4

We are also aware of other prepaid card
providers that have products that seek to facilitate online commerce through added features aimed at both merchants and consumers.
There are several prepaid card providers that specifically target youth in their product offerings (e.g. MYPLASH, and PAYjr). Similar
to the SSPC Card, these prepaid cards represent a way for parents to be linked to their children’s accounts.

In summary,
while we face potential future competition in our target market for our products, we currently believe our products offer distinct
features that respond to market needs not well served by the identified competitors mentioned above. However, many of these firms
have longer operating histories, greater name recognition and greater financial, technical, and marketing resources than us. Increased
competition from any of these sources could result in our failure to achieve and maintain an adequate level of customer demand
and market share to support the cost of our operations.

Corporate History

Our Company was originally incorporated in the State of Colorado
on May 14, 1990 as “Snow Eagle Investments, Inc.” and was inactive from 1990 until 1997. In April 1997, the Company
acquired the assets of 1st Net Technologies, LLC, a California limited liability company, and the Company changed its
name to “1st Net Technologies, Inc.” and operated as an Internet commerce and services business. In August 2001, the
Company suspended its operations. In September of 2005, the Company acquired VOS Systems, Inc. (the “VOS Subsidiary”)
as its wholly owned subsidiary and the Company changed its name to “VOS International, Inc.” and traded under the symbol
“VOSI.OB”. The VOS Subsidiary operated as a technology company involved in the design, development, manufacturing,
and marketing of consumer electronic products.

On October 16, 2007, we sold the VOS Subsidiary and acquired
BillMyParents-CA (at the time both our Colorado parent and California subsidiary were named IdeaEdge, Inc.). On May 1, 2009, our
Company changed our name from IdeaEdge, Inc. to Socialwise, Inc., and our stock traded under the symbol “SCLW.OB”.
On May 25, 2011, we changed our name to BillMyParents, Inc. and beginning June 13, 2011, our stock traded under the symbol “BMPI.OB.”
On February, 15, 2013, we changed our name to The SpendSmart Payments Company and beginning February 28, 2013, our stock traded
under the symbol “SSPC.OB.”

Item 1A – Risk Factors

Investment in our common stock involves a high degree of
risk. You should carefully consider the risks described below together with all of the other information included in this herein
before making an investment decision. If any of the following risks actually occur, our business, financial condition or results
of operations could suffer. In that case, the market price of our common stock could decline, and you may lose all or part of your
investment.

Risks Related to Our Business

WE
HAVE A LIMITED OPERATING HISTORY OVERALL AND HAVE ONLY RECENTLY EMBARKED ON OUR CURRENT CORPORATE FOCUS OF PROVIDING ONLINE PAYMENT
SOLUTIONS.

We completed our acquisition of BillMyParents-CA
on October 16, 2007. BillMyParents-CA was formed in April 2007 to pursue opportunities in the gift card industry. We subsequently
refocused our efforts on providing prepaid cards for young people and their parents. We do not currently have an adequate level
of operating revenues that would support profitable operations and we have a limited operating history. Because we have a limited
operating history, our historical financial information is not a reliable indicator of future performance. Therefore, it is difficult
to evaluate the business and prospects of our Company. Furthermore, our revised business focus centered on SSPC has been ongoing
only since 2009. We have limited experience as to whether SSPC will be popular with consumers. Failure to correctly evaluate our
Company’s prospects could result in an investor’s loss of a significant portion or all of his investment in our Company.

We cannot be certain that we will ever
generate sufficient revenues and gross margin to achieve profitability in the future. Our failure to significantly increase revenues
or to raise additional adequate and necessary financing would seriously harm our business and operating results. We have incurred
significant costs in building, launching and marketing our SSPC Product. In addition, we have signed an agreement with an endorser
that requires the expenditure of significant capital resources, including advances totaling close to $4 million. On November 30,
2012 we closed on a private equity transaction whereby we raised $2,580,500 in net proceeds after deducting fees and expenses,
however we will still require additional funding in order to operate our business. If we fail to achieve sufficient revenues and
gross margin with our SSPC Product, or our revenues grow more slowly than anticipated, or if our operating or capital expenses
increase more than is expected or cannot be reduced in the event of lower revenues, our business will be materially and adversely
affected and an investor could suffer the loss of a significant portion or all of his investment in our Company.

5

THE CURRENT BANK THAT ISSUES OUR CARDS
WILL NOT ISSUE CARDS THAT ARE RELATED TO CELEBRITY ENDORSEMENTS. WE HAVE ENTERED INTO A LETTER OF INTENT WITH ANOTHER BANKING INSTITUTION
THAT WILL ISSUE OUR CARDS THAT RELATE TO CELEBRITY ENDORSEMENTS, BUT THERE IS NO GUARANTEE THAT WE WILL COME TO TERMS ON A FINAL
AGREEMENT.

The current bank that issues our SSPC cards
will not issue pre-paid cards that relate to any celebrity endorsements. We have entered into a letter of intent with another banking
institution that will issue our SSPC cards that are affiliated with celebrity endorsements. There can be no assurance that we will
enter into a final agreement with such bank or come to an agreement on financial terms that allows us to operate profitably. While
we anticipate entering into a final agreement with satisfactory financial terms with the bank in the near future, there is no guarantee
that we will be successful in doing so and may need to seek a relationship with another bank. If we are unable to enter into an
agreement with another bank that will issue our cards relating to celebrity endorsements, such inability will materially impact
our business.

WE
FACE COMPETITION FROM OTHER ONLINE PAYMENT SYSTEMS.

We will face competition from other companies
with similar product offerings. Many of these companies have longer operating histories, greater name recognition and substantially
greater financial, technical and marketing resources than us. Many of these companies also have more extensive customer bases,
broader customer relationships and broader industry alliances than us, including relationships with many of our potential customers.
Increased competition from any of these sources could result in our failure to achieve and maintain an adequate level of customers
and market share to support the cost of our operations.

WE
HAVE LIMITED RESOURCES TO DEVELOP OUR PRODUCT OFFERINGS.

Our ability to successfully access the
capital markets at the same time that our Company has required funding for the development and marketing of our product offerings
is challenging. This has caused and will likely continue to cause us to restrict funding of the development of our products and
to favor the development of one product offering over the other based on their relative estimated potentials for commercial success
as evaluated by our management. We will require additional debt and/or equity financing to pursue our growth strategy. Given our
limited operating history and existing losses, there can be no assurance that we will be successful in obtaining additional financing.
Furthermore, the issuance by us of any additional securities pursuant to any future fundraising activities undertaken by us would
dilute the ownership of existing shareholders and may reduce the price of our common stock. Furthermore, debt financing, if available,
will require payment of interest and may involve restrictive covenants that could impose limitations on our operating flexibility.
Our current focus is on our SSPC Cards. The failure of our SSPC Cards to be commercially successful would substantially harm our
business and results of operations. Our failure to successfully obtain additional future funding may jeopardize our ability to
continue our business and operations. Furthermore, in the future we may determine that it is in the best interest of our Company
to severely curtail, license, jointly develop with a third party or sell one of our product offerings, which may be on terms which
limit the revenue potential of the product offering to our Company.

WE
RELY ON THIRD-PARTY SUPPLIERS AND DISTRIBUTORS THAT ARE SPECIFIC TO OUR BUSINESS AND DISTRIBUTION CHANNELS SUCH AS PROCESSORS,
PROGRAMMERS, SOCIAL NETWORKS AND SECURITY ADVISORS.

We will be dependent on other companies
to provide necessary products and services in connection with key elements of our business. Any interruption in our ability to
obtain these services, or comparable quality replacements would severely harm our business and results of operations. Should any
of these adverse contingencies result, they could substantially harm our business and results of operations and an investor could
suffer the loss of a significant portion or all of his investment in our Company.

WE
RELY ON OUR BANK ISSUERS TO ISSUE SSPC CARDS AND THIRD-PARTY CREDIT CARD MERCHANT PROCESSORS TO ALLOW OUR CUSTOMERS TO LOAD BALANCES
ON THEIR SSPC CARDS AND THESE THIRD PARTIES COULD VIEW OUR PRE-PAID SSPC CARD AND LIMITED FINANCIAL RESOURCES AS OVERLY RISKY.

SSPC Cards are issued by our bank issuers
who are essential to our ability to market our products. Additionally, most of our customers load balances on their SSPC cards
with a credit card. We are dependent on our bank issuers in order to market SSPC cards. Should one or more of our bank issuers
judge our financial resources inadequate, it/they could terminate its/their relationship(s) with us, and we could no longer issue
or service cards issued by that bank. This would require us to incur large expenses to obtain a new bank issuer(s), if obtaining
such issuer were even possible.

We are also dependent on third party credit
card merchant processors to allow our customers to load these balances on their SSPC cards. Many credit card merchant processors
view the prepaid card industry which we operate in as high risk from a fraud and financial standpoint. While we take steps to reduce
fraud in our business, our limited financial resources can be viewed as too risky by credit card merchant processors and cause
them not to want to do business with us, or discontinue doing business with us. Since most of our customers load balances on their
SSPC cards with a credit card, any interruption in our ability to obtain these services or comparable quality replacements, would
severely harm our business and results of operations.

6

Should we lose the services of one or more
of our bank issuers or those of a credit card merchant processor and not be able to replace them, our business and results of operations
would be substantially impaired, and an investor could suffer the loss of a significant portion or all of his investment in our
Company.

WE
OPERATE IN A HIGHLY REGULATED ENVIRONMENT AND FAILURE BY US OR THE BANK(S) THAT ISSUE(S) OUR CARDS TO COMPLY WITH APPLICABLE LAWS
AND REGULATIONS COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS.

We operate in a highly regulated environment,
and failure by us or one or more of the banks that issue our cards to comply with the laws and regulations to which we are subject
could negatively impact our business. We are subject to a wide range of federal and state laws and regulations. In particular,
our products and services are subject to an increasingly strict set of legal and regulatory requirements intended to protect consumers
and to help detect and prevent money laundering, terrorist financing and other illicit activities. Many of these laws and regulations
are evolving, unclear and inconsistent across various jurisdictions, and ensuring compliance with them is difficult and costly.
Failure by us or our bank to comply with the laws and regulations to which we are or may become subject to could result in fines,
penalties or limitations on our ability to conduct our business, or federal or state actions, any of which could significantly
harm our reputation with consumers and other network participants, banks that issue our cards and regulators and could materially
and adversely affect our business, operating results and financial condition.

CHANGES
IN CREDIT CARD ASSOCIATION OR OTHER NETWORK RULES OR STANDARDS SET BY THE PAYMENT NETWORKS OR CHANGES IN CARD ASSOCIATION AND NETWORK
FEES OR PRODUCTS OR INTERCHANGE RATES COULD ADVERSELY AFFECT OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS.

We and the banks that issue our cards
are subject to card network association rules that could subject us to a variety of fines or penalties that may be levied by the
card associations or networks for acts or omissions by us or businesses that work with us, including credit card merchant processors.
The termination of the card association registrations held by us through any of the banks that issue our cards or any changes
in card association or other network rules or standards, including interpretation and implementation of existing rules or standards,
that increase the cost of doing business or limit our ability to provide our products and services could have an adverse effect
on our business, operating results and financial condition. In addition, from time to time, card associations could increase the
organization and/or processing fees that they charge, which could increase our operating expenses, reduce our profit margin and
adversely affect our business, operating results and financial condition. Furthermore, a substantial portion of our operating
revenues is derived from interchange fees, and we expect interchange revenues to someday potentially represent a significant percentage
of our total operating revenues. The amount of interchange revenues that we earn is highly dependent on the interchange rates
that the payment networks set and adjust from time to time. The enactment of the Wall Street Reform and Consumer Protection Act,
or the Dodd-Frank Act, required the Federal Reserve Board to implement regulations that have substantially limited interchange
fees for many issuers. While we believe the interchange rates that may be earned by us are exempt from such limitations, in light
of this legislation and recent attention generally on interchange rates in the United States, there can be no assurance that the
interpretation or enforcement of interchange legislation or regulation will not impact our interchange revenues substantially.
If interchange rates decline, whether due to actions by the payment networks, the banks that issue our cards or existing or future
legislation, regulation or the interpretation or enforcement thereof, we would likely need to change our fee structure to compensate
for lost interchange revenues. To the extent we increase the pricing of our products and services, we might find it more difficult
to acquire new card customers and to maintain or grow card usage and customer retention, and we could suffer reputational damage
and become subject to greater regulatory scrutiny. We also might have to discontinue certain products or services. As a result,
our operating revenues, operating results, prospects for future growth and overall business could be materially and adversely
affected.

CHANGES
IN LAWS AND REGULATIONS TO WHICH WE ARE SUBJECT, OR TO WHICH WE MAY BECOME SUBJECT, MAY INCREASE OUR COSTS OF OPERATION, DECREASE
OUR OPERATING REVENUES AND DISRUPT OUR BUSINESS.

Changes in laws and regulations or the
interpretation or enforcement thereof may occur that could increase our compliance and other costs of doing business, require significant
systems redevelopment, or render our products or services less profitable or obsolete, any of which could have an adverse effect
on our results of operations. We could face more stringent anti-money laundering rules and regulations, as well as more stringent
regulations, compliance with which could be expensive and time consuming. Changes in laws and regulations governing the way our
products are sold or in the way those laws and regulations are interpreted or enforced could adversely affect our ability to distribute
our products and the cost of providing those products and services. If onerous regulatory requirements were imposed on the sale
of our products and services, the requirements could lead to a loss of retail distributors, which in turn could materially and
adversely impact our operations. State and federal legislators and regulatory authorities have become increasingly focused on the
banking and consumer financial services industries and continue to propose and adopt new legislation that could result in significant
adverse changes in the regulatory landscape for financial institutions (including card issuing banks) and other financial services
companies (including us). Changes in the way we or the banks that issue our cards could expose us and the banks that issue our
cards to increased regulatory oversight, more burdensome regulation of our business, and increased litigation risk, each of which
could increase our costs and decrease our operating margins. Additionally, changes to the limitations placed on fees, the interchange
rates that can be charged or the disclosures that must be provided with respect to our products and services could increase our
costs and decrease our operating revenues.

7

THE
DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT MAY HAVE A SIGNIFICANT ADVERSE IMPACT ON OUR BUSINESS, RESULTS OF OPERATIONS
AND FINANCIAL CONDITION.

In July 2010,
President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (“DFA”). The DFA, as
well as regulations promulgated thereunder, could have a significant adverse impact on the Company’s business, results of
operations and financial condition.

The DFA has resulted
in increased scrutiny and oversight of consumer financial services and products, primarily through the establishment of the Consumer
Financial Protection Bureau (“CFPB”) within the Federal Reserve. The CFPB has broad rulemaking and enforcement authority
over providers of pre-paid cards, among other credit providers. The CFPB has the authority to write regulations under federal consumer
financial protection laws, and to enforce those laws. The CFPB regulations have yet to be fully promulgated and depending on how
the CFPB functions, it could have a material adverse impact on our business. The impact this new regulatory regime will have on
the Company’s business is uncertain at this time.

Many provisions
of the DFA require the adoption of rules to implement. In addition, the DFA mandates multiple studies, which could result in additional
legislative or regulatory action. Therefore, the ultimate consequences of the DFA and its impact on our Company’s business,
results of operations and financial condition remain uncertain.

WE
ARE SUBJECT TO VARIOUS PRIVACY RELATED REGULATIONS, INCLUDING THE GRAMM-LEACH-BLILEY ACT WHICH MAY INCLUDE AN INCREASED COST OF
COMPLIANCE.

We are subject
to various laws, rules and regulations related to privacy, information security and data protection, including the Gramm-Leach-Bliley
Act, and we could be negatively impacted by these laws, rules and regulations. The Gramm-Leach-Bliley Act guidelines require, among
other things, that each financial institution develop, implement and maintain a written, comprehensive information security program
containing safeguards that are appropriate to the financial institution’s size and complexity, the nature and scope of the
financial institution’s activities and the sensitivity of any customer information at issue. Our management believes that
we are currently operating in compliance with these regulations. However, continued compliance with these laws, rules and regulations
regarding the privacy, security and protection of customer and employee data, or the implementation of any additional privacy rules
and regulations, could result in higher compliance and technology costs for our Company.

OUR
BUSINESS COULD SUFFER IF THERE IS A DECLINE IN THE USE OF PREPAID CARDS AS A PAYMENT MECHANISM OR THERE ARE ADVERSE DEVELOPMENTS
WITH RESPECT TO THE PREPAID FINANCIAL SERVICES INDUSTRY IN GENERAL.

As the prepaid financial services industry
evolves, consumers may find prepaid financial services to be less attractive than traditional or other financial services. Consumers
might not use prepaid financial services for any number of reasons, including the general perception of our industry. For example,
negative publicity surrounding other prepaid financial service providers could impact our business and prospects for growth to
the extent it adversely impacts the perception of prepaid financial services among consumers. If consumers do not continue or
decrease their usage of prepaid cards, our operating revenues may remain at current levels or decline. Predictions by industry
analysts and others concerning the growth of prepaid financial services as an electronic payment mechanism may overstate the growth
of an industry, segment or category, and you should not rely upon them. The projected growth may not occur or may occur more slowly
than estimated. If consumer acceptance of prepaid financial services does not continue to develop or develops more slowly than
expected or if there is a shift in the mix of payment forms, such as cash, credit cards, traditional prepaid cards and prepaid
cards, away from our products and services, it could have a material adverse effect on our financial position and results of operations.

FRAUDULENT
AND OTHER ILLEGAL ACTIVITY INVOLVING OUR PRODUCTS AND SERVICES COULD LEAD TO REPUTATIONAL DAMAGE TO US AND REDUCE THE USE AND ACCEPTANCE
OF OUR CARDS AND RELOAD NETWORK.

Criminals are using increasingly sophisticated
methods to engage in illegal activities involving prepaid/credit/debit cards or cardholder information, such as counterfeiting,
fraudulent payment or refund schemes and identity theft. We rely upon third parties for some transaction processing services, which
subjects us and our cardholders to risks related to the vulnerabilities of those third parties. A single significant incident of
fraud or increases in the overall level of fraud involving our cards, could result in financial or reputational damage to us, which
could reduce the use and acceptance of our cards, cause other channel members to cease doing business with us or lead to greater
regulation that would increase our compliance costs.

8

A
DATA SECURITY BREACH COULD EXPOSE US TO LIABILITY AND PROTRACTED AND COSTLY LITIGATION, AND COULD ADVERSELY AFFECT OUR REPUTATION
AND OPERATING REVENUES.

We, the banks that issue our cards, network
acceptance members and/or third-party processors receive, transmit and store confidential customer and other information in connection
with the sale and use of our prepaid cards. Encryption software and the other technologies used to provide security for storage,
processing and transmission of confidential customer and other information may not be effective to protect against data security
breaches by third parties. The risk of unauthorized circumvention of such security measures has been heightened by advances in
computer capabilities and the increasing sophistication of hackers. Improper access to our or these third parties’ systems
or databases could result in the theft, publication, deletion or modification of confidential customer and other information. A
data security breach of the systems on which sensitive cardholder data and account information are stored could lead to fraudulent
activity involving our products and services, reputational damage and claims or regulatory actions against us. If we are sued in
connection with any data security breach, we could be involved in protracted and costly litigation. If unsuccessful in defending
that litigation, we might be forced to pay damages and/or change our business practices or pricing structure, any of which could
have a material adverse effect on our operating revenues and profitability. We would also likely have to pay (or indemnify the
banks that issue our cards for) fines, penalties and/or other assessments imposed as a result of any data security breach. Further,
a significant data security breach could lead to additional regulation, which could impose new and costly compliance obligations.
In addition, a data security breach at the bank that issues our cards, network acceptance members or third-party processors could
result in significant reputational harm to us and cause the use and acceptance of our cards to decline, either of which could have
a significant adverse impact on our operating revenues and future growth prospects.

Our future success may depend significantly
on our ability to protect our proprietary rights to the intellectual property upon which our products and services will be based.
Any patents we obtain in the future may be challenged by re-examination or otherwise invalidated or eventually be found unenforceable.
Both the patent application process and the process of managing patent disputes can be time consuming and expensive. Competitors
may attempt to challenge or invalidate our patents, or may be able to design alternative techniques or devices that avoid infringement
of our patents, or develop products with functionalities that are comparable to ours. In the event a competitor infringes upon
our patent or other intellectual property rights, litigation to enforce our intellectual property rights or to defend our patents
against challenge, even if successful, could be expensive and time consuming and could require significant time and attention from
our management. We may not have sufficient resources to enforce our intellectual property rights or to defend our patents against
challenges from others.

WE
ARE DEPENDENT UPON CONSUMER TASTES WITH RESPECT TO PREFERRED METHODS OF ONLINE PAYMENT FOR THE SUCCESS OF OUR PRODUCTS AND SERVICES.

Our product offerings’ acceptance
by consumers and their consequent generation of revenues will depend upon a variety of unpredictable factors, including:

•

Public taste, which is always subject to change;

•

The quantity and popularity of other payment systems
available to the public;

•

The continued appeal and reputations of our celebrity
spokespersons; and

•

The fact that the distribution and sales methods chosen
for the products and services we market may be ineffective.

For any of these reasons, our programs
may be commercially unsuccessful. If we are unable to market products which are commercially successful, we may not be able to
recoup our expenses and/or generate sufficient revenues. In the event that we are unable to generate sufficient revenues, we may
not be able to continue operating as a viable business and an investor could suffer the loss of a significant portion or all of
his investment in our Company.

OUR
COMPANY IS ECONOMICALLY SENSITIVE TO GENERAL ECONOMIC CONDITIONS, INCLUDING CONTINUED WEAKENING OF THE ECONOMY; THEREFORE A REDUCTION
IN CONSUMER PURCHASES OF DISCRETIONARY ITEMS COULD CONSEQUENTLY MATERIALLY IMPACT OUR COMPANY’S FUTURE REVENUES FROM SSPC
FOR THE WORSE.

Consumer purchases are subject to cyclical
variations, recessions in the general economy and the future economic outlook. Our results may be dependent on a number of factors
impacting consumer spending, including general economic and business conditions; consumer confidence; wages and employment levels;
the housing market; consumer debt levels; availability of consumer credit; credit and interest rates; fuel and energy costs; energy
shortages; taxes; general political conditions, both domestic and abroad; and the level of customer traffic on social networking
websites. Consumer purchases of discretionary items may decline during recessionary periods and at other times when disposable
income is lower. A downturn or an uncertain outlook in the economy may materially adversely affect our business and the success
of our SSPC Cards.

9

Financial Risks

OUR
FINANCIAL STATEMENTS HAVE BEEN PREPARED ASSUMING THAT OUR COMPANY WILL CONTINUE AS A GOING CONCERN.

The factors described herein raise substantial
doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result
from this uncertainty. The report of our independent registered public accounting firm included an explanatory paragraph expressing
substantial doubt about our ability to continue as a going concern in their audit report for the fiscal years ended September 30,
2012 and 2011. If we cannot generate the required revenues and gross margin to achieve profitability or obtain additional capital
on acceptable terms, we will need to substantially revise our business plan or cease operations and an investor could suffer the
loss of a significant portion or all of his investment in our Company.

CURRENT
MACRO-ECONOMIC CONDITIONS COULD ADVERSELY AFFECT THE FINANCIAL VIABILITY OF OUR COMPANY.

Continuing recessionary conditions in the
global economy threaten to cause further tightening of the credit and equity markets and more stringent lending and investing standards.
The persistence of these conditions could have a material adverse effect on our access to further needed capital. In addition,
further deterioration in the economy could adversely affect our corporate results, which could adversely affect our financial condition
and operations.

WE
DO NOT EXPECT TO PAY DIVIDENDS FOR THE FORESEEABLE FUTURE, AND WE MAY NEVER PAY DIVIDENDS AND, CONSEQUENTLY, THE ONLY OPPORTUNITY
FOR INVESTORS TO ACHIEVE A RETURN ON THEIR INVESTMENT IS IF A TRADING MARKET DEVELOPS AND INVESTORS ARE ABLE TO SELL THEIR SHARES
FOR A PROFIT OR IF OUR BUSINESS IS SOLD AT A PRICE THAT ENABLES INVESTORS TO RECOGNIZE A PROFIT.

We currently intend to retain any future
earnings to support the development and expansion of our business and do not anticipate paying cash dividends for the foreseeable
future. Our payment of any future dividends will be at the discretion of our Board of Directors after taking into account various
factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any
credit agreements that we may be a party to at the time. In addition, our ability to pay dividends on our common stock may be limited
by state law. Accordingly, we cannot assure investors any return on their investment, other than in connection with a sale of their
shares or a sale of our business. At the present time there is a limited trading market for our shares. Therefore, holders of our
securities may be unable to sell them. We cannot assure investors that an active trading market will develop or that any third
party will offer to purchase our business on acceptable terms and at a price that would enable our investors to recognize a profit.

OUR
NET OPERATING LOSS (“NOL”) CARRY-FORWARD IS LIMITED.

We have recorded a valuation allowance
amounting to our entire net deferred tax asset balance due to our lack of a history of earnings, possible statutory limitations
on the use of tax loss carry-forwards generated in the past and the future expiration of our NOL. This gives rise to uncertainty
as to whether the net deferred tax asset is realizable. Internal Revenue Code Section 382, and similar California rules, place
a limitation on the amount of taxable income that can be offset by carry-forwards after a change in control (generally greater
than a 50% change in ownership). As a result of these provisions, it is likely that given our acquisition of The SpendSmart Payments
Company-CA, future utilization of the NOL will be severely limited. Our inability to use our Company’s historical NOL, or
the full amount of the NOL, would limit our ability to offset any future tax liabilities with its NOL.

Corporate and Other Risks

LIMITATIONS
ON DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION OF OUR COMPANY’S OFFICERS AND DIRECTORS BY US MAY DISCOURAGE STOCKHOLDERS
FROM BRINGING SUIT AGAINST AN OFFICER OR DIRECTOR.

Our Company’s articles of incorporation
and bylaws provide, with certain exceptions as permitted by governing state law, that a director or officer shall not be personally
liable to us or our stockholders for breach of fiduciary duty as a director, except for acts or omissions which involve intentional
misconduct, fraud or knowing violation of law, or unlawful payments of dividends. These provisions may discourage stockholders
from bringing suit against a director for breach of fiduciary duty and may reduce the likelihood of derivative litigation brought
by stockholders on our behalf against a director.

10

WE
ARE RESPONSIBLE FOR THE INDEMNIFICATION OF OUR OFFICERS AND DIRECTORS.

Should our officers and/or directors require
us to contribute to their defense, we may be required to spend significant amounts of our capital. Our articles of incorporation
and bylaws also provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances,
against attorney’s fees and other expenses incurred by them in any litigation to which they become a party arising from their association
with or activities on behalf of our Company. This indemnification policy could result in substantial expenditures, which we may
be unable to recoup. If these expenditures are significant, or involve issues which result in significant liability for our key
personnel, we may be unable to continue operating as a going concern.

OUR
EMPLOYEES, EXECUTIVE OFFICERS, DIRECTORS AND INSIDER STOCKHOLDERS BENEFICIALLY OWN OR CONTROL A SUBSTANTIAL PORTION OF OUR OUTSTANDING
COMMON STOCK, WHICH MAY LIMIT YOUR ABILITY AND THE ABILITY OF OUR OTHER STOCKHOLDERS, WHETHER ACTING ALONE OR TOGETHER, TO PROPOSE
OR DIRECT THE MANAGEMENT OR OVERALL DIRECTION OF OUR COMPANY.

Additionally, this concentration of ownership
could discourage or prevent a potential takeover of our Company that might otherwise result in an investor receiving a premium
over the market price for his shares. Approximately half of our outstanding shares of common stock is beneficially owned and controlled
by a group of insiders, including our employees, directors and executive officers. Accordingly, our employees, directors, executive
officers and insider shareholders may have the power to control the election of our directors and the approval of actions for which
the approval of our stockholders is required. If you acquire shares of our common stock, you may have no effective voice in the
management of our Company. Such concentrated control of our Company may adversely affect the price of our common stock. Our principal
stockholders may be able to control matters requiring approval by our stockholders, including the election of directors, mergers
or other business combinations. Such concentrated control may also make it difficult for our stockholders to receive a premium
for their shares of our common stock in the event we merge with a third party or enter into different transactions which require
stockholder approval. These provisions could also limit the price that investors might be willing to pay in the future for shares
of our common stock.

WE
ARE DEPENDENT FOR OUR SUCCESS ON A FEW KEY EMPLOYEES.

Our inability to retain those employees
would impede our business plan and growth strategies, which would have a negative impact on our business and the value of your
investment. Our success depends on the skills, experience and performance of key members of our Company. Each of those individuals
may voluntarily terminate his employment with our Company at any time. Were we to lose one or more of these key employees, we would
be forced to expend significant time and money in the pursuit of a replacement, which would result in both a delay in the implementation
of our business plan and the diversion of limited working capital. We do not maintain a key man insurance policy on any of our
key employees.

SHOULD
WE BE SUCCESSFUL IN TRANSITIONING TO A COMPANY GENERATING SIGNIFICANT REVENUES, WE MAY NOT BE ABLE TO MANAGE OUR GROWTH EFFECTIVELY,
WHICH COULD ADVERSELY AFFECT OUR OPERATIONS AND FINANCIAL PERFORMANCE.

The ability to manage and operate our
business as we execute our growth strategy will require effective planning. Significant rapid growth could strain our internal
resources, leading to a lower quality of customer service, reporting problems and delays in meeting important deadlines resulting
in loss of market share and other problems that could adversely affect our financial performance. Our efforts to grow could place
a significant strain on our personnel, management systems, infrastructure and other resources. If we do not manage our growth
effectively, our operations could be adversely affected, resulting in slower growth and a failure to achieve or sustain profitability.

Capital Market Risks

OUR
COMMON STOCK IS THINLY TRADED, SO YOU MAY BE UNABLE TO SELL AT OR NEAR ASK PRICES OR AT ALL IF YOU NEED TO SELL YOUR SHARES TO
RAISE MONEY OR OTHERWISE DESIRE TO LIQUIDATE YOUR SHARES.

There is limited market activity in our
stock and we may be too small to attract the interest of many brokerage firms and analysts. We cannot give you any assurance that
a broader or more active public trading market for our common stock will develop or be sustained. While we are trading on OTCQB,
the trading volume we will develop may be limited by the fact that many major institutional investment funds, including mutual
funds, as well as individual investors follow a policy of not investing in over-the-counter stocks and certain major brokerage
firms restrict their brokers from recommending over-the-counter stocks because they are considered speculative, volatile, thinly
traded and the market price of the common stock may not accurately reflect the underlying value of our Company. The market price
of our common stock could be subject to wide fluctuations in response to quarterly variations in our revenues and operating expenses,
announcements of new products or services by us, significant sales of our common stock, including “short” sales, the
operating and stock price performance of other companies that investors may deem comparable to us, and news reports relating to
trends in our markets or general economic conditions.

11

THE
APPLICATION OF THE “PENNY STOCK” RULES TO OUR COMMON STOCK COULD LIMIT THE TRADING AND LIQUIDITY OF THE COMMON STOCK,
ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK AND INCREASE YOUR TRANSACTION COSTS TO SELL THOSE SHARES.

As long as the trading price of our common
stock is below $5 per share, our common stock will be subject to the “penny stock” rules, unless we otherwise qualify
for an exemption from the “penny stock” definition. The “penny stock” rules impose additional sales practice
requirements on certain broker-dealers who sell securities to persons other than established customers and accredited investors
(generally those with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse).
These regulations, if they apply, require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities
to persons other than established customers or certain accredited investors must make a special written suitability determination
regarding such a purchaser and receive such purchaser’s written agreement to a transaction prior to sale. The Financial Industry
Regulatory Authority, or FINRA, has adopted sales practice requirements which may also limit a stockholder’s ability to buy and
sell our stock. In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in
recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable
for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers
must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and
other information. These regulations may have the effect of limiting the trading activity of our common stock, reducing the liquidity
of an investment in our common stock and increasing the transaction costs for sales and purchases of our common stock as compared
to other securities. The stock market in general and the market prices for penny stock companies in particular, have experienced
volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations
may adversely affect the price of our stock, regardless of our operating performance. Stockholders should be aware that, according
to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns
include 1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; 3) boiler
room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; 4) excessive
and undisclosed bid-ask differential and markups by selling broker-dealers; and 5) the wholesale dumping of the same securities
by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse
of those prices and with consequent investor losses. The occurrence of these patterns or practices as well as the regulatory disclosure
requirements set forth above could increase the volatility of our share price, may limit investors’ ability to buy and sell
our securities and have an adverse effect on the market price for our shares of common stock.

WE
MAY NOT BE ABLE TO ATTRACT THE ATTENTION OF MAJOR BROKERAGE FIRMS, WHICH COULD HAVE A MATERIAL ADVERSE IMPACT ON THE MARKET VALUE
OF OUR COMMON STOCK.

Security analysts of major brokerage firms
may not provide coverage of our common stock since there is no incentive to brokerage firms to recommend the purchase of our common
stock. The absence of such coverage limits the likelihood that an active market will develop for our common stock. It will also
likely make it more difficult to attract new investors at times when we require additional capital.

WE
MAY BE UNABLE TO LIST OUR COMMON STOCK ON NASDAQ OR ON ANY SECURITIES EXCHANGE.

Although we intend to apply to list our
common stock on NASDAQ in the future, we cannot assure you that we will be able to meet the initial listing standards, including
the minimum per share price and minimum capitalization requirements, or that we will be able to maintain a listing of our common
stock on this trading. Until such time as we qualify for listing on NASDAQ or another national securities exchange, our common
stock will continue to trade on OTCQB or another over-the-counter quotation system where an investor may find it more difficult
to dispose of shares or obtain accurate quotations as to the market value of our common stock. In addition, rules promulgated by
the SEC impose various practice requirements on broker-dealers who sell securities that fail to meet certain criteria set forth
in those rules to persons other than established customers and accredited investors. Consequently, these rules may deter broker-dealers
from recommending or selling our common stock, which may further affect the liquidity of our common stock. It would also make it
more difficult for us to raise additional capital.

There is a risk that this downward pressure
may make it impossible for an investor to sell his or her securities at any reasonable price, if at all. Future sales of substantial
amounts of our equity securities in the public market, or the perception that such sales could occur, could put downward selling
pressure on our securities, and adversely affect the market price of our common stock.

12

Item 2 –Properties

Our corporate offices were previously located at 6190
Cornerstone Court, Suite 216, San Diego California 92121, where we leased approximately 3,100 square
feet of office space. The monthly rental payments for the facility were approximately $2,695 plus common area maintenance charges.
We closed our San Diego offices on July 17, 2013. Our corporate offices are now located in Des Moines, IA, where we lease approximately
1,000 square feet of office space. The monthly payments for the facility is approximately $1,800, including common area maintenance
charges. We believe our facilities are in good condition and adequate to meet our current and anticipated requirements.

Item 3 – Legal Proceedings

From time to time and
in the course of business, we may become involved in various legal proceedings seeking monetary damages and other relief. The amount
of any ultimate liability from such claims cannot be determined. However, there are no legal claims currently pending or threatened
against us that in the opinion of our management would be likely to have a material adverse effect on our financial position, results
of operations or cash flows. Our Company is involved in a disagreement with
our incumbent processor.We are currently involved in an arbitration
proceeding with our former transaction processor and our arbitration hearing date is currently set for December 3, 2013. In
connection with the services provided under a processing agreement, the processor asserted that we are liable for previously unbilled
services. We are vigorously asserting our position and we currently estimate that we will prevail in the arbitration. We
have adequate reserves allocated in the event that we would be required to make any payments in connection with this matter. If
we are judged liable for either a portion or all of the charges, or should we enter into amonetary
settlement with the processor, such liability or settlement could materially affect our ability to execute our customer acquisition
strategy by reducing the amount available for such activities by any amounts due to the processor or needed for related expenses.

Our common stock
trades publicly on the OTCQB under the symbol “SSPC.” The OTCQB is a regulated quotation service that displays
real-time quotes, last-sale prices and volume information in over-the-counter equity securities. The OTCQB securities are
traded by a community of market makers that enter quotes and trade reports. This market is extremely limited and any prices
quoted may not be a reliable indication of the value of our common stock. The following table sets forth the high and low bid
prices per share of our common stock by the OTCQB for the periods indicated as reported on the OTCQB. On October 1,
2013, the closing price of our common stock as reported on the OTCQB was $2.00 per share.

For the year ended September 30, 2012

High

Low

Fourth Quarter

$

13.50

$

4.95

Third Quarter

7.95

3.15

Second Quarter

7.95

5.40

First Quarter

7.80

4.50

For the year ended September 30, 2011

Fourth Quarter

$

8.40

$

6.00

Third Quarter

7.65

5.25

Second Quarter

8.40

5.25

First Quarter

9.45

6.15

Our stock began trading
on the OTC Bulletin Board under the symbol “IDED.OB” on October 18, 2007 and was later changed to “IDAE.OB”
on March 12, 2008 and to “SCLW.OB” on May 13, 2009 and to “BMPI.OB” on June 13, 2011. On July 23, 2012
our stock was moved form the OTC Bulletin Board to the OTCQB. The quotes represent inter-dealer prices, without adjustment for
retail mark-up, markdown or commission and may not represent actual transactions. The trading volume of our securities fluctuates
and may be limited during certain periods. As a result of these volume fluctuations, the liquidity of an investment in our securities
may be adversely affected.

Holders of Record

As of October 1,
2013, 10,356,423 shares of our common stock were issued and outstanding, and held by approximately 2,000 stockholders.

We have never declared or paid any cash dividends
on our common stock. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our
business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will
be at the discretion of our Board of Directors.

Securities Authorized for Issuance under
Equity Compensation Plans

The table below sets
forth information as of September 30, 2012, with respect to compensation plans under which our common stock is authorized for issuance.

14

On August 4,
2011, our Board of Directors approved the adoption of the SpendSmart Payments Company 2011 Equity Incentive Plan (the
“2011 Plan”). The 2011 Plan has been approved by our shareholders. The 2011 Plan provides for granting
of stock-based awards including: incentive stock options, non-statutory stock options, stock bonuses and rights to
acquire restricted stock. The total number of shares of common stock that may be issued pursuant to stock awards under the
2011 Plan shall not exceed in the aggregate 25,000,000 shares of the common stock of our Company. We also have a
stockholder-approved Plan (the IdeaEdge, Inc. 2007 Equity Incentive Plan - the “2007 Plan”, previously approved
by our shareholders). The 2007 Plan has similar provisions and purposes as the 2011 Plan. The total number of shares of
common stock that may be issued pursuant to stock awards under the 2007 Plan shall not exceed in the aggregate 4,000,000
shares of the common stock of our Company. The table below sets forth information as of September 30, 2012 with respect to
our 2007 Plan and 2011 Plan:

Plan Category

Number of
securities to be
issued upon
exercise of
outstanding
options

Weighted-average
exercise price of
outstanding options

Number of securities
remaining available for
future issuance under
equity compensation
plans

The following discussion and analysis
is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated.
The discussion should be read in conjunction with our consolidated financial statements and the notes presented herein. In addition
to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations
contain forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those
anticipated in these forward-looking statements as a result of certain factors discussed in this prospectus. See “FORWARD
LOOKING STATEMENTS” paragraph above.

Restatement of Previously Issued Financial
Statements

On August 19, 2013, after consulting with the Company’s Audit Committee, management concluded it
had incorrectly calculated its historical volatility for the fiscal years ended September 30, 2012 and 2011. The error specifically
related to an excel spreadsheet calculation whereby it was calculating a volatility that was significantly higher than it should
have been. The historical volatility is a key assumption and driver in determining the valuation of the company’s stock based
compensation and deriviative liabilities. The impact of the change is a reduction of the derivative liabilities and stock based
compensation as of and for the fiscal years ended September 30, 2012 and 2011 and for the interim periods within.

Overview and Financial Condition

Discussions with respect
to our Company’s operations included herein refer to our operating subsidiary, The SpendSmart Payments Company-CA. Our Company
purchased The SpendSmart Payments Company-CA on October 16, 2007. We have no other operations than those of The SpendSmart Payments
Company-CA.

15

Results of Operations

Revenues

Our Company had total
revenues of $1,009,250 for the year ended September 30, 2012 ($104,030 for the year ended September 30, 2011). Our revenues increased
$905,220 or 8.7 times our prior fiscal year’s total, but have not reached the level required to support our current and planned
infrastructure and that would result in profits from operations. Revenues consist of fees charged to our customer prepaid cardholders
for monthly maintenance fees, ATM fees, load fees and other insignificant revenues. We continue to not charge our cardholders for
new card initiation fees. We charge maintenance fees on our issued cards (“ICs”) to cardholders on a monthly basis
pursuant to the terms and conditions in our cardholder agreements. We charge ATM fees to cardholders when they withdraw money or
conduct other transactions at certain ATMs in accordance with the terms and conditions in our cardholder agreements. Other revenues
(currently insignificant) consist primarily of fees associated with optional products or services, which we may offer to consumers
during the card activation process.

Our aggregate new card
fee revenues vary based upon the number of ICs activated and the activities associated therewith. Our aggregate monthly maintenance
fee revenues vary primarily based upon the number of active cards in our portfolio and the average fee assessed per account. Our
average monthly maintenance fee per active account depends upon the extent to which fees are waived based on promotional considerations.
Our aggregate ATM fee revenues vary based upon the number of cardholder ATM transactions and the average fee per ATM transaction.

Our prepaid card product
offerings are marketed primarily to parents, enabling them to link and communicate with younger cardholders (generally their children
or other young people in their care) in order to guide responsible spending. Our products have been designed with significant features
that we hope consumers will find compelling. Going forward we plan to market our products (both online, in traditional retail settings
and with strategic partners)to the public as a convenient and safe youth payment system. For the early portion of fiscal
2011, our revenues included insignificant amounts from a former (and now discontinued) product offering that was only available
as a payment method on several youth gaming sites.

While we are optimistic
about the prospects for prepaid card products, since this continues to be a relatively new product offering, there can be no assurance
about whether or when they will turn out to be a successful or if they will generate sufficient revenues to fund our operations
over future periods.

Operating Expenses

In order to better
represent our financial results and to make them comparable to leading companies in the prepaid card industry, we have classified
our operating expenses into four major categories: (1) selling and marketing; (2) personnel related; (3) operations; and (4) general
and administrative expenses. We do not allocate common expenses to any of these expense categories.

Selling and marketing expenses

Selling and marketing
expenses for the year ended September 30, 2012 totaled $3,025,724 ($5,445,994 in fiscal 2011). This was a decrease of $2,420,270
and 44.4% from fiscal 2011 to fiscal 2012. More significant components of these expenses for the years ended September 30, 2012
and 2011 were as follows.

2012

2011

Change

% Change

Marketing consulting

$

603,949

$

1,454,645

$

(850,696

)

(58.5

)%

Public relations

125,369

221,753

(96,384

)

(43.5

)%

Direct marketing

1,972,416

2,682,053

(709,637

)

(26.5

)%

Marketing programs

272,172

1,050,791

(778,619

)

(74.1

)%

Market research

44,646

11,273

33,373

296.0

%

Other

7,172

25,479

(18,307

)

(71.9

)%

$

3,025,724

$

5,445,994

$

(2,420,270

)

(44.4

)%

Decreases in marketing
consulting in the most recent fiscal year over the prior year totals were due to not employing brand awareness marketing agencies
in fiscal 2012. Our levels of direct marketing were significantly reduced toward the end of 2012 while we focused more on our account
engagement (e.g. revenue per account) and our transition to a new card processor. Marketing programs in the prior year were significantly
higher due to higher spending on brand awareness events and advertising during fiscal 2011. We expect selling and marketing expenses
to increase in fiscal 2013 with our planned new focus on celebrity endorsements, discussed elsewhere herein.

16

Personnel related expenses

Personnel
related expenses totaled $8,983,665 during the year ended September 30, 2012, ($4,942,808 for the year ended September 30,
2011). This amounted to an increase of $4,040,859 or an 81.8% increase from fiscal 2011 to fiscal 2012. More significant
components of these expenses for the years ended September 30, 2012 and 2011 were as follows.

2012

2011

Change

% Change

Salaries and wages

$

2,341,563

$

1,349,049

$

992,514

73.6

%

Stock based compensation

6,040,144

3,127,359

2,291,785

93.1

%

Consulting and outside services

296,230

267,579

28,651

10.7

%

Other

305,730

198,821

106,909

53.8

%

$

8,983,667

$

4,942,808

$

4,040,859

81.8

%

Overall increases in
personnel related expenses reflected the addition of employees and consultants in the latter part of fiscal 2011 to match higher
activities surrounding our operations. Most notable was the inclusion for portions of fiscal 2012 of two highly compensated executives.
In the most recently completed quarter, salaries and wages were significantly higher in comparison to fiscal 2011 because of bonuses
accrued and paid in that quarter. Stock based compensation was significantly higher in fiscal 2012 compared to the prior fiscal
year due primarily to option and warrant grants made to directors and executive officers during fiscal 2012.

Processing expenses

Processing expenses
totaled $3,284,869 for the year ended September 30, 2012 ($1,615,423 for the year ended September 30, 2011). This resulted in an
increase of $1,669,446 or 103.3% compared to fiscal 2011. The following is a detail of the significant components of processing
expenses for the respective periods.

2012

2011

Change

% Change

Card processing

$

791,854

$

115,186

$

676,668

587.5

%

Fraud losses

54,923

27,278

27,645

101.3

%

Account initiation

127,532

127,811

(279

)

(0.2

)%

Card creation

371,484

188,049

183,435

97.5

%

Account holder communications

56,441

15,471

40,970

264.8

%

Merchant credit card fees

343,482

60,292

283,190

469.7

%

Contracted software development

1,055,309

864,847

190,462

22.0

%

Customer service

381,145

141,984

239,161

168.4

%

Other

102,699

74,505

28,194

37.8

%

$

3,284,869

$

1,615,423

1,669,446

103.3

%

Substantial increases
in processing expenses were the result of scaling our account holder base from an insignificant total during the previous fiscal
year to the levels we reached through September 30, 2012. To a lesser extent, we encountered redundancies during our transition
from our old to new transaction processor. Given its ongoing nature, we would expect that processing expenses will continue to
increase on an absolute basis based on our forecast growth in the number of our cardholders; however with a forecast increased
cardholder base, we expect that such costs will decrease on a per account basis over time. Contracted software development expenses
(an ongoing expense for the foreseeable future) increased on a year to date basis over the prior fiscal year due to expenses incurred
in connection with the transition to our new card processor. Card creation expenses were up significantly due to the need to issue
all new cards to our entire existing customer base, required as a result of our change in processors.

17

General and administrative expenses

General and administrative
expenses totaled $1,468,718 for the year ended September 30, 2012 ($1,523,392 for the year ended September 30, 2011). This resulted
in a decrease of $54,674 or 3.6% from fiscal 2011 to fiscal 2012. The following is a detail of the significant components of general
and administrative expenses for the respective periods.

2012

2011

Change

% Change

Accounting

$

66,981

$

69,604

$

(2,623

)

(3.8

)%

Insurance

68,417

55,709

12,708

22.8

%

Investor relations

113,205

65,499

47,706

72.8

%

Investor relations consulting

673,326

1,089,470

(416,144

)

(38.2

)%

Legal fees - general counsel

198,389

24,273

174,116

717.3

%

Rent

45,103

31,172

13,931

44.7

%

Travel and lodging

121,761

57,573

64,188

111.5

%

Seminars

28,737

4,395

24,342

553.9

%

Telecommunications

51,055

25,972

25,083

96.6

%

Other

101,744

99,725

2,019

2.0

%

$

1,468,718

$

1,523,392

$

(54,674

)

(3.6

)%

Investor relations
consulting results from the issuance of stock to investor relations consultants for services performed on our behalf (this is a
noncash expense). We had significant issuances of stock issued to in investor relations consultant in fiscal 2011 that were reduced
in the corresponding periods during fiscal 2012. These were counterbalanced by increases in our most recently completed quarter
due to issuances of stock to that same consultant and to other outside investor relations firms. Legal expenses are up over the
prior year in connection with a dispute with our former processor and increased securities related work we underwent in fiscal
2012. Travel related expenses have increased due to our CEO and VP of Operations being located in Des Moines, IA, while the bulk
of our operations and personnel remain situated in San Diego, CA.

Total operating expenses

Total operating
expenses for the year ended September 30, 2012 were $16,762,978 ($13,527,617 for the year ended September 30, 2011). The
increase in operating expenses of $3,235,361 or 23.9% from the previous year’s level is noted throughout above.
Included in the total operating expenses were noncash expenses totaling $12,138,963 and $4,550,977 for fiscal 2012 and fiscal
2011, respectively.

Nonoperating Income and Expense

For the years ended
September 30, 2012 and 2011, interest income totaled $5,103 and $11,003, respectively, while interest expense totaled $133,379
for the year ended September 30, 2011. Interest income resulted from cash on deposit during the respective fiscal years. Interest
expense for fiscal 2011 included cash interest paid on amounts outstanding from October 1, 2010 through November 2010 of $5,568
and noncash interest expense resulting from the amortization and accretion of discounts on the same liabilities totaling $127,811.

During the year ended
September 30, 2012, we recognized a loss from the change in the fair value of derivative liabilities of $5,346,358 ($95,274 in
fiscal 2011). These derivative liabilities are the fair value of warrants issued in fiscal 2010 with anti-dilution privileges and
warrants issued in fiscal 2012 with certain registration priveleges.

Net Loss and Net Loss per Share

For the year ended
September 30, 2012, our net loss totaled $21,094,983 ($13,641,237 for the year ended September 30, 2011). Our basic and diluted
net loss per share was $3.94 and $2.83 for the years ended September 30, 2012 and September 30, 2011, respectively. Common stock
equivalents and outstanding options and warrants were not included in the calculations due to their effect being anti-dilutive.

Liquidity and Capital Resources

We have primarily
financed our operations to date through the sale of unregistered equity. At September 30, 2012, our total current assets were
$5,769,400. Total current liabilities were $15,777,883 (all of which were current) and our stockholders’ deficiency
totaled $19,677,135. Also included in current liabilities were amounts arising in connection with derivative liabilities
(consisting of warrants) totaling $14,345,625. These liabilities represent the fair value of the warrants . Any future
settlement of these securities could result either: (1) upon their expiration unexercised; or (2) upon their exercise and
receipt of cash by our Company of the cash proceeds of their exercise (assuming the exercise is not effected on a cashless
basis allowed by some of the outstanding warrants accounted for as derivatives).

18

From October 1, 2011
through November 21, 2011, we entered into subscription agreements with accredited investors pursuant to which we issued a total
of 784,750 shares of our Common Stock, and five year warrants to purchase up to an additional 414,938 shares of our Common Stock
at exercise prices ranging from $7.50 to $9.00 per share, in exchange for gross proceeds totaling $4,708,500. This financing transaction
resulted in net proceeds to us of $4,173,643, after deducting fees and expenses.

From January 1, 2012
through July 19, 2012, we entered into subscription agreements with accredited investors pursuant to which we issued a total of
10,165 shares of our Series B Preferred Stock (convertible into 1,694,167 shares of our Common Stock), and five year warrants to
purchase up to an additional 1,111,042 shares of our Common Stock at exercise prices ranging between $7.50 and $9.00 per share,
in exchange for gross and net proceeds totaling approximately $10,165,000 and $9,218,580, respectively.

On November 30, 2012,
we entered into subscription agreements (“Subscription Agreement”) with seven accredited investors pursuant to which
we issued 486,667 shares of our common stock, $0.001 par value (the “Common Shares”) at a purchase price of $6.00 per
share (the “Offering”). Pursuant to the terms of the Offering, we issued five year warrants to purchase up to an additional
458,333 shares of our common stock in the aggregate, at an exercise price of $7.50 per share, to two investors, and five year warrants
to purchase up to 7,083 shares of our common stock in the aggregate, at an exercise price of $9.00 per share, to five investors
(collectively, the “Warrants”). The Offering resulted in net proceeds to us of approximately $2,580,500 after deducting
fees and expenses totaling $339,500.

Our cash and cash equivalents
balance at September 30, 2012 totaled $5,509,911. The change in our financial position from the previous amounts reported at September
30, 2011 resulted from the sale of unregistered common stock and warrants to purchase common stock that resulted in additional
net cash proceeds totaling $13,393,104, offset by negative cash flows from operating activities totaling $9,099,751 and the repurchase
of common stock of $160,000. At the time of this report, we did not have cash on-hand adequate to fund our projected needs through
September 30, 2013. We plan to cover this shortfall through the sale of additional shares of our Company’s equity securities,
however there are no assurances that this will occur. We also have commitments to make advance payments by January 2013 under a
recently signed endorsement agreement totaling $3,750,000 ($1,900,000 of which was paid on November 21, 2012).

Plan of Operations

We do not currently
expect to purchase any significant property or equipment and have plans to add a limited number of employees during the next twelve
months, including a President added in November 2013. We expect however to continue to incur costs in improving, maintaining and
marketing our prepaid card products during fiscal 2013. We expect that our greatest cost to be incurred during fiscal 2013 will
continue to be in the area of customer account acquisition.

Going Concern

As noted above (and by our independent registered public accounting firm in their report on our consolidated
financial statements as of and for the year ended September 30, 2012), there exists substantial doubt about our ability to continue
as a going concern. Our financial statements do not contain any adjustments related to the outcome of this uncertainty.

Critical Accounting Policies

Management’s
discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements
which are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of
these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities,
related disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. We continually evaluate our estimates and judgments and we base our estimates and judgments
on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results
can occur as circumstances change and additional information becomes known.

Contractual Obligations

With the exception
of employment agreements, a change of control agreement we have with our Chief Financial Officer and the endorsement agreement
described elsewhere herein, we have no outstanding contractual obligations through the date of this report that are not cancellable
at our Company’s option.

Management’s
discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements
which are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of
these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities,
related disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. We continually evaluate our estimates and judgments and we base our estimates and judgments
on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results
can occur as circumstances change and additional information becomes known.

In preparing our consolidated
financial statements in conformity with accounting principles generally accepted in the United States of America, we must make
a variety of estimates that affect the reported amounts and related disclosures. We have identified the following accounting policies
that we believe require application of management’s most subjective judgments, often requiring the need to make estimates about
the effect of matters that are inherently uncertain and may change in subsequent periods. Our significant accounting policies are
described in more detail in the notes to consolidated financial statements included elsewhere in this filing. If actual results
differ significantly from our estimates and projections, there could be a material effect on our financial statements.

Use of Estimates.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ materially from those estimates.

Revenue Recognition.
We generally have two revenue sources: monthly account fees and usage fees. Monthly account fees are recognized in the month
for which the cardholder has a balance on an active card. No fees are charged or recorded as revenue for cards for which there
is no cardholder balance. Usage fees are recognized at the time of the transaction. We defer revenue for monthly fees paid in advance
of the related month of service. Deferred revenues at September 30, 2012 and 2011 were insignificant. We recognize fee revenue
gross of related processing costs and service fees. We do not collect sales taxes in connection with our products or services.
During the year ended September 30, 2012 we remited cardholder funds to the issuing bank within two business days of card loading.
As of September 30, 2012 we had $81,131 of cardholder funds included in amounts on deposit with or due from merchant processor
and also recorded an offsetting liability of $81,131 in accounts payable.

Stock Based Compensation.
We account for stock based compensation arrangements through the measurement and recognition of compensation expense for all
stock based payment awards to employees and directors based on estimated fair values. We use the Black-Scholes option valuation
model to estimate the fair value of our stock options and warrants at the date of grant. The Black-Scholes option valuation model
requires the input of subjective assumptions to calculate the value of options and warrants. We use historical company data among
other information to estimate the expected price volatility and the expected forfeiture rate and not comparable company information,
due to the lack of comparable publicly traded companies that exist in our industry.

Derivatives. We
account for certain of our outstanding warrants as derivative liabilities. These derivative liabilities are ineligible for equity
classification due to provisions of the instruments that may result in an adjustment to their conversion or exercise prices. The
fair value of these liabilities is estimated using option pricing models that are based on the individual characteristics of our
warrants, preferred and common stock, the derivative liability on the valuation date as well as assumptions for volatility, remaining
expected life, risk-free interest rate and, in some cases, credit spread.

We did not have any
off-balance sheet arrangements as of September 30, 2012.

20

Item 8 – Financial Statements

Report of Independent Registered Public Accounting Firm

22

Consolidated Balance Sheets at September 30, 2012 and 2011 (Restated)

23

Consolidated Statements of Operations for the years ended September 30, 2012 and 2011 (Restated)

24

Consolidated Statements of Changes in Stockholders’ Equity (Deficiency) for the years ended September 30, 2012 and 2011 (Restated)

25

Consolidated Statements of Cash Flows for the years ended September 30, 2012 and 2011 (Restated)

26

Notes to Consolidated Financial Statements

27

21

REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

The SpendSmart Payments Company

We have audited the accompanying consolidated
balance sheets of The SpendSmart Payments Company (the “Company”) as of September 30, 2012 and 2011, and the related
consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for each of the years
in the two-year period ended September 30, 2012. The financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.

In our opinion, the financial statements
referred to above present fairly, in all material respects, the financial position of The SpendSmart Payments Company as of September
30, 2012 and 2011, and the results of its operations and its cash flows for each of the years in the two-year period ended September
30, 2012, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue
as a going concern. As described in Note 2 to the consolidated financial statements, the Company has incurred net losses since
inception and has an accumulated deficit at September 30, 2012. These factors among others raise substantial doubt about the ability
of the Company to continue as a going concern. Management’s plans in regard to those matters are also described in Note 2.
The Company’s ability to achieve its plans with regard to those matters, which may be necessary to permit the realization
of assets and satisfaction of liabilities in the ordinary course of business, is uncertain. The consolidated financial statements
do not include any adjustments that might result from the outcome of this uncertainty.

We
had conversions of 3,972 shares of Series A preferred stock into 80,253 shares of common stock during the year ended September
30, 2012 (3,795 shares of Series A preferred stock into 76,667 shares of common stock during the year ended September 30, 2011).

See
accompanying notes to consolidated financial statements

26

The SpendSmart Payments Company

Notes to Consolidated Financial Statements

1.

Restatement of previously issued financial statements

On August 19, 2013, after consulting with the Company’s Audit Committee, management concluded it
had incorrectly calculated its historical volatility for the fiscal years ended September 30, 2012 and 2011. The error specifically
related to an excel spreadsheet calculation whereby it was calculating a volatility that was significantly higher than it should
have been. The historical volatility is a key assumption and driver in determining the valuation of the company’s stock based
compensation and derivative liabilities. The impact of the change has reduced the derivative liabilities and stock based compensation
as of and for the fiscal years ended September 30, 2012 and 2011.

As part of the restatement process, the Company also corrected
its roll-forward tables with respect to the high and low bid prices per share of our common stock included in Item 5 of this Form
10-K/A and the number of options and warrants outstanding at September 30, 2012 and 2011. The financial effects of correcting these
tables were not significant, however were included as part of the restatement.

The following tables summarize the effects
of the restatements on the specific items presented in the Company’s historical consolidated financial statements previously
included in the Annual Report:

Consolidated Balance Sheet

For the year ended September 30, 2011

As Previously

Reported on Form

10-K

Adjustments

As Restated

Additional paid-in capital

$

32,155,789

(569,733

)

31,586,056

Accumulated deficit

$

(33,492,286

)

569,733

(32,922,553

)

Consolidated Statement of Operations

For the year ended September 30, 2011

As Previously

Reported on Form

10-K

Adjustments

As Restated

Personnel related

$

5,512,541

(569,733

)

4,942,808

Total operating expenses

$

14,097,350

(569,733

)

13,527,617

Loss from operations

$

(13,993,320

)

569,733

(13,423,587

)

Net loss and comprehensive net loss

$

(14,210,970

)

569,733

(13,641,237

)

Net loss and comprehensive net loss applicable to common shareholders

$

(14,210,970

)

569,733

(13,641,237

)

Basic and diluted net loss per share

$

(5.00

)

2.17

(2.83

)

Consolidated Statement of Cash Flows

For the year ended September 30, 2011

As Previously

Reported on Form

10-K

Adjustments

As Restated

Net loss

$

(14,210,970

)

569,733

(13,641,237

)

Stock based compensation

$

3,697,092

(569,733

)

3,127,359

27

The SpendSmart Payments Company

Notes to Consolidated Financial Statements

Consolidated Balance Sheet

For the year ended September 30, 2012

As Previously

Reported on Form

10-K

Adjustments

As Restated

Derivative liabilities

$

19,346,754

(5,001,129

)

14,345,625

Total current liabilities

$

20,779,012

(5,001,129

)

15,777,883

Redeemable Common stock

$

789,569

236,604

1,026,173

Redeemable Series B convertible preferred stock

$

8,368,048

288,844

8,656,892

Additional paid-in capital

$

34,969,884

(717,313

)

34,252,571

Accumulated deficit

$

(59,210,530

)

5,192,994

(54,017,536

)

Total stockholders’ equity (deficiency)

$

(24,152,816

)

4,475,681

(19,677,135

)

Consolidated Statement of Operations

For the year ended September 30, 2012

As Previously

Reported on Form

10-K

Adjustments

As Restated

Personnel related

$

11,201,002

(2,217,335

)

8,983,667

Total operating expenses

$

18,980,313

(2,217,335

)

16,762,978

Loss from operations

$

(17,971,063

)

2,217,335

(15,753,728

)

Change in fair value of derivative liabilities

$

(7,752,284

)

2,405,926

(5,346,358

)

Net loss and comprehensive net loss

$

(25,718,244

)

4,623,261

(21,094,983

)

Deemed dividend on preferred stock

$

(6,550,881

)

2,069,755

(4,481,126

)

Net loss and comprehensive net loss applicable to common shareholders

$

(32,269,125

)

6,693,016

(25,576,109

)

Basic and diluted net loss per share

$

(5.00

)

1.06

(3.94

)

Consolidated Statement of Cash Flows

For the year ended September 30, 2012

As Previously

Reported on Form

10-K

Adjustments

As Restated

Net loss

$

(25,718,244

)

4,623,261

(21,094,983

)

Stock based compensation

$

8,257,479

(2,217,335

)

6,040,144

Change in fair value of derivative liabilities

$

7,752,284

(2,405,926

)

5,346,358

28

The SpendSmart Payments Company

Notes to Consolidated Financial Statements

2.

Basis of Presentation
and Going Concern

The SpendSmart Payments Company (hereinafter referred to as “we” or “the/our Company”)
is a Colorado corporation. Through our subsidiary incorporated in the state of California, The SpendSmart Payments Company (“SpendSmart-CA”),
we issue prepaid cards to young people and their parents. We are a publicly traded company trading on the OTC Bulletin Board under
the symbol “SSPC.” The accompanying consolidated financial statements include the accounts of our Company and The SpendSmart
Payments Company-CA as of and through September 30, 2012. All intercompany amounts have been eliminated in consolidation.

Our consolidated financial statements have
been prepared assuming that we will continue as a going concern. However, we have incurred net losses and have yet to establish
profitable operations. These factors among others create substantial doubt about our ability to continue as a going concern. This
uncertainty could have an adverse effect on our ability to continue as a going concern through or significantly beyond September
30, 2013. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

In response to our Company’s cash
needs, subsequent to September 30, 2012 and through the date of this report, we sold additional common stock and warrants as described
in our subsequent events footnote that follows. We also currently plan to (although there can be no assurance) consummate sales
of additional equity through the sale of unregistered shares of our Company’s common stock. All additional amounts raised
will be used for our future investing and operating cash flow needs. However there can be no assurance that we will be successful
in consummating such financing. This description of our recent financing and future plans for financing
do not constitute an offer to sell or the solicitation of an offer to buy our securities, nor shall such securities be offered
or sold in the United States absent registration or an applicable exemption from the registration requirements and certificates
evidencing such shares contain a legend stating the same.

3.

Summary of Significant Accounting Policies

Our consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the United States of America.

Use of Estimates

The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the United States of America requires our management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could materially differ from those estimates.

Revenue Recognition

We generally have two
revenue sources: monthly account fees and usage fees. Monthly account fees are recognized in the month for which the cardholder
has a balance on an active card. No fees are charged or recorded as revenue for cards for which there is no cardholder balance.
Usage fees are recognized at the time of the transaction. We defer revenue for monthly fees paid in advance of the related month
of service. Deferred revenues at September 30, 2012 and 2011 were insignificant. We recognize fee revenue gross of related processing
costs and service fees. We do not collect sales taxes in connection with our products or services. During the year ended September
30, 2012 we remited cardholder funds to the issuing bank within two business days of card loading. As of September 30, 2012 we
had $81,131 of cardholder funds included in amounts on deposit with or due from merchant processor and also recorded an offsetting
liability of $81,131 in accounts payable.

Cash and cash equivalents

We consider all investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents primarily represent funds invested in money market funds,
bank certificates of deposit and U.S. government debt securities whose cost equals fair market value.

From time to time, we have maintained bank
balances in excess of insurance limits established by the Federal Deposit Insurance Corporation. We have not experienced any losses
with respect to cash. Management believes our Company is not exposed to any significant credit risk with respect to its cash and
cash equivalents.

29

The SpendSmart Payments Company

Notes to Consolidated Financial Statements

Property and Equipment

Property and equipment are recorded at
cost and depreciated using the straight-line method over the estimated useful lives of the related assets (generally three to five
years). Costs incurred for maintenance and repairs are expensed as incurred and expenditures for major replacements and improvements
are capitalized and depreciated over their estimated remaining useful lives. Depreciation expense for the years ended September
30, 2012 and 2011 was $1,131 and $11,065, respectively.

Valuation of Long-Lived Assets

We record impairment losses on long-lived
assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by
those assets are less than the assets’ carrying amount. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amounts of the assets exceed the estimated fair value of the assets.
There were no impairments recorded in 2012 or 2011.

Income Tax Expense Estimates and
Policies

As part of the income tax provision process
of preparing our financial statements, we are required to estimate our Company’s provision for income taxes. This process
involves estimating our current tax liabilities together with assessing temporary differences resulting from differing treatments
of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. Management then assesses
the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent believed that recovery
is not likely, a valuation allowance is established. Further, to the extent a valuation allowance is established and changes occur
to this allowance in a financial accounting period, such changes are recognized in our tax provision in our consolidated statement
of operations. We use our judgment in making estimates to determine our provision for income taxes, deferred tax assets and liabilities
and any valuation allowance is recorded against our net deferred tax assets.

There are various factors that may cause
these tax assumptions to change in the near term, and we may have to record a future valuation allowance against our deferred tax
assets. We recognize the benefit of an uncertain tax position taken or expected to be taken on our income tax returns if it is
“more likely than not” that such tax position will be sustained based on its technical merits.

Stock Based Compensation

We account for stock based compensation
arrangements through the measurement and recognition of compensation expense for all stock based payment awards to employees and
directors based on estimated fair values. We use the Black-Scholes option valuation model to estimate the fair value of our stock
options and warrants at the date of grant. The Black-Scholes option valuation model requires the input of subjective assumptions
to calculate the value of options and warrants. We use historical company data among other information to estimate the expected
price volatility and the expected forfeiture rate and not comparable company information.

Derivatives

We account for certain of our outstanding
warrants issued in 2010 and 2012 (“2010 Warrants” and “2012 Warrants,” respectively) as derivative liabilities.
The 2010 Warrants were determined to be ineligible for equity classification due to provisions of the respective instruments that
may result in an adjustment to their conversion or exercise prices. The 2012 Warrants were determined to be ineligible for equity
classification due to certain share registration provisions which may result in future settlement obligations which require net
cash settlement. These derivative liabilities which arose from the issuance of the 2010 and 2012 Warrants (less reductions in derivative
liabilities outstanding and changes to the fair value of derivative liabilities) resulted in an ending balance of derivative liabilities
of $14,345,625 and $1,289,520, as of September 30, 2012 and 2011, respectively. During the year ended September 30, 2012, we had
reductions in derivative liabilities (with a corresponding increase in additional paid-in capital) totaling $481,418 due to the
expiration of anti-dilution provisions for certain of the 2010 Warrants.

We recognized losses due to changes in
the fair value of derivatives for the years ended September 30, 2012 and 2011 totaling $5,346,358 and $95,274, respectively. Subsequent
changes to the fair value of the derivative liabilities will continue to require adjustments to their carrying value that will
be recorded as other income (in the event that their value decreases) or as other expense (in the event that their value increases).
In general (all other factors being equal), we will record income when the market value of our common stock decreases and will
record expense when the value of our stock increases. The fair value of these liabilities is estimated using option pricing models
that are based on the individual characteristics of our warrants, preferred and common stock, as well as assumptions for volatility,
remaining expected life, risk-free interest rate and, in some cases, credit spread.

30

The SpendSmart Payments Company

Notes to Consolidated Financial Statements

Net Loss per Share

We calculate basic earnings per share (“EPS”)
by dividing our net loss and comprehensive net loss applicable to common shareholders by the weighted average number of common
shares outstanding for the period, without considering common stock equivalents. Diluted EPS is computed by dividing net income
or net loss and comprehensive net loss applicable to common shareholders by the weighted average number of common shares outstanding
for the period and the weighted average number of dilutive common stock equivalents, such as options and warrants. Options and
warrants are only included in the calculation of diluted EPS when their effect is dilutive. Potentially dilutive securities totaling
636,081 and 2,754,789 shares at September 30, 2012 (146,725 and 359,772 shares at September 30, 2011) were excluded from historical
basic and diluted earnings per share, respectively, due to their anti-dilutive effect.

During the year ended September 30, 2012, the Company issued Series B preferred stock with warrants to
purchase additional common stock. The fair value of the warrants issued was approximately $4,481,126, at the issue date, resulting
in a beneficial conversion feature and an immediate deemed dividend of approximately $4,481,126.

Fair value of assets and liabilities

Fair value is defined as the price that
would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. When determining the fair value for applicable assets and liabilities, we consider the principal or most
advantageous market in which we would transact and considers assumptions market participants would use when pricing the asset or
liability, such as inherent risk, transfer restriction, and risk of nonperformance. This guidance also establishes a fair value
hierarchy to prioritize inputs used in measuring fair value as follows:

·

Level 1: Observable inputs such as quoted prices in active markets;

·

Level 2: Inputs, other than quoted prices in active markets, that are observable either directly
or indirectly; and

·

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting
entity to develop its own assumptions.

Our financial instruments are cash and
cash equivalents, accounts payable, derivative liabilities and notes payable. The recorded values of cash equivalents and accounts
payable approximate their fair values based on their short-term nature. The fair value of derivative liabilities is estimated using
option pricing models that are based on the individual characteristics of our warrants, preferred and common stock, the derivative
liability on the valuation date as well as assumptions for volatility (from 87.8 to 90.6%), remaining expected life (from 2 to 4 years), risk-free interest rate and, in
some cases, credit spread. The derivative liabilities are the only Level 3 valuations.

At September 30, 2012 and 2011, the estimated
fair values of the liabilities measured on a recurring basis are as follows:

Fair Value Measurements at September 30, 2012

Balance at
September 30,
2012

Quoted Prices in
Active Markets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

Warrant derivative liabilities

$

14,345,625

$

–

$

–

$

14,345,625

Total

$

14,345,625

$

–

$

–

$

14,345,625

Fair Value Measurements at September 30, 2011

Balance at
September 30,
2011

Quoted Prices in
Active Markets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

Warrant derivative liabilities

$

1,289,520

$

–

$

–

$

1,289,520

Total

$

1,289,520

$

–

$

–

$

1,289,520

31

The SpendSmart Payments Company

Notes to Consolidated Financial Statements

The following tables present the
activity for liabilities measured at estimated fair value using unobservable inputs for the twelve months ended September 30,
2012 and 2011:

We expense advertising costs as incurred.
We have no existing arrangements under which we provide or receive advertising services from others for any consideration other
than cash. Advertising expenses (primarily in the form of Internet direct marketing) totaled $2,077,766 and $2,752,733 for the
years ended September 30, 2012 and 2011, respectively.

Litigation

From time to time, we may become involved
in litigation and other legal actions. We estimate the range of liability related to any pending litigation where the amount and
range of loss can be estimated. We record our best estimate of a loss when the loss is considered probable. Where a liability is
probable and there is a range of estimated loss with no best estimate in the range, we record a charge equal to at least the minimum
estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance
of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the
date of the financial statements and (ii) the range of loss can be reasonably estimated. Through the date of these financial statements,
we are currently not involved in litigation or other legal actions. Our Company
is involved in a disagreement with our incumbent processor.We
are currently involved in an arbitration proceeding with our former transaction processor and our arbitration hearing date is currently
set for December 3, 2013. In connection with the services provided under a processing agreement, the processor asserted that
we are liable for previously unbilled services. We are vigorously asserting our position and we currently estimate that we
will prevail in the arbitration. We have adequate reserves allocated in the event that we would be required to make any payments
in connection with this matter. If we are judged liable for either a portion or all of the charges, or should we enter into amonetary settlement with the processor, such liability or settlement could materially affect
our ability to execute our customer acquisition strategy by reducing the amount available for such activities by any amounts due
to the processor or needed for related expenses.

32

The SpendSmart Payments Company

Notes to Consolidated Financial Statements

Recently Issued Accounting Pronouncements

In June 2011, the Financial Accounting
Standards Board, or the FASB, issued Accounting Standards Update (“ASU”), 2011-05, Comprehensive Income: Presentation
of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income,
and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate
but consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement
of changes in stockholders’ equity. The ASU does not change the items which must be reported in other comprehensive income, how
such items are measured or when they must be reclassified to net income. This ASU is effective for annual periods beginning after
December 15, 2011 and interim periods within those fiscal years, early adoption is permitted. We have adopted the guidance in this
ASU which did not have a material impact on our consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04,
Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,
which converges common fair value measurement and disclosure requirements in accordance with GAAP and International Financial Reporting
Standards (“IFRS”). This ASU is effective for interim or annual periods beginning after December 15, 2011. Our adoption
of this ASU did not have a material impact on our consolidated financial statements.

4.

Issuances of preferred stock, common stock and warrants

During the year ended September 30, 2012,
we issued 18,000 shares of our common stock to a contractor in exchange for programming services performed (14,948 during the year
ended September 30, 2011). In connection with these issuances of shares, we recognized expenses of $108,000 during the year ended
September 30, 2012 ($100,000 for the year ended September 30, 2011).

During the year
ended September 30, 2012, we entered into subscription agreements with 73 accredited investors pursuant to which we issued 10,165
shares, respectively, of our Series B preferred stock and warrants to purchase up to an additional 834,167 shares of our common
stock with an exercise price of $7.50 per share and a term of five years after the date of their issuance and an additional 276,875
shares of our common stock with an exercise price of $9.00 per share and a term of five years after the date of their issuance,
in exchange for gross proceeds totaling $10,165,000 ($9,219,461 net of cash commissions and related expenses totaling $945,539). The fair value of the warrants issued was approximately $4,481,126, at the issue date, and
resulted in a beneficial conversion feature and then immediately amortized as a deemed dividend of $4,481,126, for the year ended
September 30, 2012. The warrants issued with the Series B preferred stock are included in the 2012 Warrants and are included in
derivative liabilities.

We also issued five-year warrants to purchase
up to a total of up to 145,267 shares of our common stock with an exercise price of $9.00 per share to our placement agent who
assisted us in connection with the transactions. The fair value of the warrants was approximately $562,569, at the issue date.
The warrants issued to our placement agent are included as issuance cost in the 2012 Warrants and are included in derivative liabilities.

The Series B preferred shares are subject
to registration rights granted at the time of their sale. The Series B preferred stock is convertible immediately (under prescribed
conditions) by our Company or the holders into a total of 1,694,167 shares of our Company’s common stock.

During the three
months ended December 31, 2011, we entered into subscription agreements with 56 accredited investors pursuant to which we issued
784,750 shares of our common stock and warrants to purchase up to an additional 112,854 shares of our common stock with an exercise
price of $9.00 per share and a term of five years after the date of their issuance and warrants to purchase up to an additional
333,333 shares of our common stock with an exercise price of $7.50 per share with a term of five years after their date of issuance,
in exchange for gross proceeds totaling $4,708,500 ($4,173,643 net of cash commissions and related expenses totaling $534,857).
The common stock, and related warrants, are subject to certain registration rights. The registration rights agreement does
not include adequate penalties if the company fails to complete timely registration, consequently, the presumption is that the
common stock, and related warrants, may be settled in cash therefore the common stock is classified as redeemable common stock,
outside of equity, until the registration is effective. In addition, the warrants are included in the 2012 Warrants and are included
in derivative liabilites. The fair value of the warrants was $2,686,417, at the issue date.

The warrants have a cashless exercise provision.
We also issued five-year warrants to purchase up to a total of up to 78,475 shares of our common stock with an exercise price of
$9.00 per share to our placement agent who assisted us in connection with the transactions. The fair value of the warrants issued
to our placement agent was approximately $461,053, at the issue date. The warrants issued to our placement agent are subject to
the same registration rights and, consequently, are included in the 2012 Warrants and included in derivative liabilities.

33

The SpendSmart Payments Company

Notes to Consolidated Financial Statements

During the year
ended September 30, 2011, we entered into subscription agreements with 47 accredited investors pursuant to which we issued 1,764,558
shares of our common stock and warrants to purchase up to an additional 323,419 shares of our common stock with an exercise price
of $9.00 per share for periods of two to five years after the date of their issuance and warrants to purchase an additional 1,295,833
shares of our common stock with an exercise price of $6.00 per share for five years after their date of issuance, in exchange for
gross proceeds totaling $10,587,350 ($9,347,418 net of cash commissions and related expenses totaling $1,239,932). These transactions
were unregistered offering of securities. The warrants were accounted for as an equity instrument since they were indexed to our
Company’s own stock and classified in shareholders’ equity. We also issued warrants to purchase up to a total of 265,187,
100,000 and 3,123 shares of our common stock with exercise prices of $9.00 per share to our placement agent, Equity Source
Partners, LLC (“ESP”) and two other concerns, respectively, who assisted us in connection
with the transactions (these totals do not reflect amounts received in connection with convertible debt described below). A principal
of ESP Cary Sucoff, became a member of our Company’s Board of Directors in May 2011. Included in the above amounts were shares
of our common stock and warrants to purchase common stock purchased directly or indirectly by a member of our Board of Directors
(since March 2011), Mr. Isaac Blech, of 1,333,333 and 1,208,333, respectively (Mr. Blech’s totals do not reflect shares or
warrants to purchase shares received in connection with convertible debt described below).

On November 24, 2010, we received notice
from Mr. Blech, the holder of a convertible note payable issued in August 2010 with an outstanding principal balance of $1 million
of his election to convert the note into 166,667 shares of our Company’s common stock at a price of $6.00 per share. At conversion
as provided in the Convertible Note Purchase Agreement with Mr. Blech, he was issued a warrant to purchase up to an additional
83,333 shares of our Company’s restricted common stock at an exercise price of $6.00 per share (he previously received a
warrant to purchase up to 41,667 shares of common stock at $6.00 per share at the inception of the note). In addition, our Company
agreed to issue Mr. Blech a warrant to purchase up to 4,167 additional shares of common stock at an exercise price of $6.00 per
share to reflect the interest due to him under the terms of the Note from inception until its scheduled maturity on February 13,
2011. We paid additional fees to our placement agent in connection with the conversion that included cash of $50,000 and five-year
warrants to purchase up to 16,667 shares of our Company’s common stock at $9.00 per share. We also issued a five year warrant
to purchase up to 23,333 shares of our common stock for $9.00 per share to ESP.

This description of our issuances of common
stock and warrants does not constitute an offer to sell or the solicitation of an offer to buy our securities, nor shall such securities
be offered or sold in the United States absent registration or an applicable exemption from the registration requirements and certificates
evidencing such shares contain a legend stating the same.

During the year
ended September 30, 2010, we entered into subscription agreements with accredited investors for the sale of our unregistered securities.
SPN Investments, Inc. (“SPN”), Kay Holdings, Inc. (“Kay”) and ESP assisted
our Company in connection with the transactions and they and their designees earned the fees and commissions there with ($71,750
for ESP). Kay and SPN have a common principal officer. In December 2010, we issued 33,333 shares of our common stock to
Kay in connection with investment funding received in November 2010.

5.

Convertible Preferred Stock

At September 30, 2012 and 2011, we had
353 and 4,325 shares, respectively, of Series A Cumulative Convertible Preferred Stock (the “Series A Stock”) outstanding.
The Series A Stock was originally issued to investors for $100 per share. The following summarizes the terms of the Series A preferred
stock outstanding:

Face Value: Each share
of Series A Stock has a face and par value of $100 and $0.001 per share, respectively.

Voluntary Conversion:
Each share of Series A Stock is convertible at the election of the holders at any time into approximately 20 shares of our common
stock, subject to increase under the anti-dilution provisions under the Certificate of Designation and the Subscription Agreement
upon the occurrence of events as defined therein.

Dividends: Except in the
event of default under the terms of the Subscription Agreement, the Series A Stock pays no dividends. In the event of an uncured
default by our Company, the Series A Stock pays dividends of 12% per annum during the period our Company is in default as described
under the Certificate of Designation.

Redemption: The Series
A Stock is not required to be redeemed by our Company.

34

The SpendSmart Payments Company

Notes to Consolidated Financial Statements

Liquidation Rights: Upon
the occurrence of a liquidation event (as defined in the Certificate of Designation), the holders of Series A Stock will be repaid
their full face value and cumulative accrued dividends prior to the receipt of any other class of preferred or common stock.

Forced Conversion: We
have the right to force conversion of each share of Series A Stock into approximately 20 shares of common stock at any time provided
our common stock has maintained a closing price of $15.00 per share for three consecutive trading days prior to conversion.

Voting Rights: Generally,
our Series A Stock has no voting rights.

Covenants: The Subscription
Agreement imposes certain covenants on us, including restrictions against incurring additional indebtedness, issuing any additional
equity except certain permitted issuances, creating any liens on our property, amending our certificate of incorporation or bylaws
in a manner which may adversely affect the Series A Stock holders, redeeming or paying dividends on shares of our outstanding common
stock, and entering into certain related party transactions.

At September 30, 2012, the Series A preferred
stock is convertible into 7,121 shares of our common stock at an effective price of $4.95 per share.

At September 30, 2012, we had 10,165 shares
of Series B convertible preferred stock (“Series B Stock”) outstanding that were issued to investors for $1,000 per
share. The following summarizes the terms of the Series B Stock outstanding:

Face Value: Each share
of Series B Stock has a face and par value of $1,000 and $0.001 per share, respectively.

Voluntary Conversion:
Each share of Series B Stock is convertible at the election of the holders at any time into 167 shares of our common stock. Dividends:
None.

Redemption: The Series
B Stock is not required to be redeemed by our Company.

Liquidation Rights: Upon
the occurrence of a liquidation event and after any payments to the holders of Series A Stock, the holders of Series B Stock will
be repaid their full face value prior to the receipt of any other class of preferred or common stock.

Forced Conversion: Each
share of Series B Stock shall automatically convert into common stock at the earlier of: 1) the effective date of registration
of common shares into which Series B Stock is convertible; or 2) six months from the date of the final closing as defined in the
related subscription agreement.

Voting Rights: Equal to
the largest number of full shares of common stock into which the shares can be converted.

At September 30, 2012, the Series B preferred
stock is convertible into 1,694,167 shares of our common stock at an effective price of $6.00 per share.

The Series B preferred stock is
subject to certain registration rights. The registration rights agreement does not include adequate penalties if the company
fails to complete timely registration, consequently, the presumption is that the preferred stock, and related warrants, may
be settled in cash, therefore the preferred stock is classified as redeemable preferred stock, outside of equity, until the
registration is effective. These were converted as of January 19, 2013.

6.

Agreements for services, officer and Board of Directors’ compensation

In August 2012, we entered into one-year
consulting agreements with Patrick Kolenik and Mr. Sucoff (Mr. Kolenik was named to our Company’s Board of Directors in August
2011). The agreements call for the payment to Messrs. Kolenik and Sucoff of $5,000 each per month for their services to our Company.
During the year ended September 30, 2012, we had expenses totaling $10,000 each in connection with these consulting agreements.

35

The SpendSmart Payments Company

Notes to Consolidated Financial Statements

Effective July 2012, our Company amended
the employment agreement of its Chairman and Chief Executive Officer, Michael R. McCoy, to provide that (1) Mr. McCoy’s Base
Salary shall be increased by $40,000 per year; (2) Mr. McCoy is to be paid a cash bonus of $400,000 prior to August 15, 2012; and
(3) Mr. McCoy shall be entitled to a lump sum cash payment equal to one and one-half times his annual Base Salary in the event
our Company changes his title to any position below that of Chief Executive Officer. All other terms of the Employment Agreement
remain in effect. Our Company also granted to Mr. McCoy options to purchase 293,333 shares of our Company’s common stock.
The options vest monthly over a period of 12 months; have an exercise price of $6.45 per share; and expire five years after the
date of grant.

In July 2012, our Company granted warrants
to purchase common stock to certain Board members as follows: Isaac Blech, 333,333; Joseph Proto, 200,000; Jesse Itzler, 133,333;
Brian Thompson, 133,333; Cary Sucoff, 133,333; and Patrick Kolenik, 133,333. The warrants vest monthly over a period of 12 months;
have an exercise price of $6.45 per share; include a cashless exercise option; and expire five years after the date of grant.

In July 2012, we granted a five-year warrant
to purchase up to 80,000 shares of our common stock to Kay Holdings, Inc. (“Kay” - Kay and SPN have a common principal
officer) with an exercise price of $6.45 per share. We recognized stock based compensation expense in connection with this grant
totaling $76,075 during the year ended September 30, 2012.

In February 2012, we entered into an investor
relations services agreement under which we agreed to pay $5,000 per month and issued 22,200 shares to Corporate Profile LLC. In
connection with the shares issued, we recognized a noncash charge totaling $133,200 for the three months ended March 31, 2012.
The agreement was suspended in April 2012 and reinstated in October 2012. We recognized the remaining 44,467 shares due under the
contract during the three months ended September 30, 2012 in the form of a noncash charge totaling $266,800.

In April 2012, we entered into an investor
relations services agreement under which we agreed to pay $30,000 in cash and issued 10,000 shares to Platinum VIII Investments
and Media, LLC (“Platinum”). In connection with the shares issued, we recognized a noncash charge totaling $60,000
during the year ended September 30, 2012. We entered into a new agreement with Platinum in September 2012 requiring the payment
of $75,000, $30,000 of which was paid during the three months ended September 30, 2012.

On August 5, 2011, we entered into an investor
relations services agreement with SPN Investments, Inc. (“SPN”) that resulted in
SPN receiving 66,667 shares of our common stock through August 2012, such amounts were vested as follows: 1) 33,333 shares at execution
of the agreement; 2) 2,778 shares on the one month’s anniversary of the agreement’s execution; and 3) 2,778 shares
on the second through twelfth months’ anniversary of the agreement’s execution. During the years ended September 30,
2012 and 2011, we recognized noncash charges to general and administrative expense totaling $183,330 and $216,670, respectively,
in connection with these shares.

On December 29, 2010, we entered into an
investor relations services agreement with Kay for the provision of investor relations services through (as modified) March 31,
2011 in exchange for 100,000 shares of our common stock. Also in December 2010 (and as mentioned above), we issued 33,333 shares
of our common stock to Kay in connection with investment funding received in November 2010. We recognized expenses during the year
ended September 30, 2011 totaling $200,000.

Beginning on April 28, 2010, we entered into a series of agreements with our placement agent (the last
of which was signed in September 2012) to act as a non-exclusive placement agent for the sales of equity securities of our Company.
Under the terms of the agreements to date with our placement agent, they received a cash payment equaling 10% of the proceeds raised
from investors introduced to our Company by our placement agent, a retainer of $50,000 in September 2012 and warrants to purchase
between ten and twenty percent of the shares of our common stock placed by our placement agent at terms similar to those sold to
the investors introduced by our placement agent.

On August 24, 2009, we entered into a non-exclusive
agreement with ESP to assist our Company in connection with fund raising activities. Under the agreement (as subsequently revised),
we issued ESP 3,333 shares of our Company’s restricted common stock and paid them or their designees: 1) up to 8% (as amended)
of the cash raised by ESP or its associates on our Company’s behalf; and 2) a five year warrant to purchase up to one share
of common stock for each 2 shares sold at the exercise price of $9.00 per share. From inception of the agreement through September
30, 2011, ESP and its designees earned cash totaling $164,400, 3,333 shares of our common stock and warrants to purchase up to
89,533 shares (also included in totals previously described above) of our common stock under the agreement (no amounts were earned
or paid since September 30, 2011 and no future sums are expected to paid under this agreement).

On May 8, 2009, we entered into an agreement
with Mr. Kolenik to provide strategic advisory services to our Company through May 2011. Through September 30, 2011, Mr. Kolenik
was issued a total of 26,800 shares of common stock and five-year warrants to purchase up to 26,800 and 6,667 common shares with
exercise prices of $15.00 and $9.00 per share, respectively. Noncash charges to operations during the year ended September 30,
2011 in connection with our issuance of common shares and warrants to Mr. Kolenik totaled $102,846.

36

The SpendSmart Payments Company

Notes to Consolidated Financial Statements

7.

Notes payable

On March 31, 2009, we issued a 12% Senior
Note payable for $750,000 originally due December 31, 2009, and 26,667 shares of our Company’s restricted common stock. The
Note was neither convertible nor secured and carried certain operating and other covenants as well as prescribing certain events
of default. Our Company subsequently extended the maturity date of the Note three times and tendered 15,000 additional shares of
its common stock to the holder. In November 2010, we tendered $358,288 to the holder in order to pay in full the remaining principal
and accrued interest due and retired the Note. We recognized interest expense (including the amortization of prepaid interest from
the cost related to the prior issuance of shares of our common stock) in connection with the Note totaling $27,790 for the year
ended September 30, 2011.

As noted above, we entered into a convertible
note agreement with Mr. Blech in August 2010 that was converted into 166,667 shares of our common stock (with the issuance of warrants
to purchase 87,500 additional shares of our common stock) in November 2010. Interest recognized during the year ended September
30, 2011 in connection with the convertible note totaled $105,589 and included contractually required interest through February
13, 2011 and the accretion of the discount on the note (related to warrants issued at the time of the note’s inception).

8.

Agreements with former officer

On June 28, 2012, we entered into a Severance
Agreement and General Release with James Collas our former President and Chief Executive Officer. Pursuant to the significant terms
of the Agreement: 1) Mr. Collas left our Company’s employment effective July 6, 2012; 2) Mr. Collas surrendered 40,000 shares
of common stock owned or controlled by him in exchange for $160,000 cash; and 3) Mr. Collas and our Company mutually released one
another for all liabilities resulting from Mr. Collas’ employment with our Company.

On April 26,
2011, we entered into an Agreement and Release with Mr. Collas pursuant to which the parties agreed that effective as of April
26, 2011, (i) Mr. Collas resigned as an officer and director of our Company; (ii) Mr. Collas’ Employment Agreement dated
January 31, 2011was terminated and Mr. Collas continued his employment with our Company as a non-executive on an “at-will”
basis; (iii) our Company paid Mr. Collas $400,000 in satisfaction of all of its obligations under a terminated Employment Agreement;
and (iv) Mr. Collas surrendered to our Company 66,667 shares of our common stock held by him.

9.

Stockholder’s equity

On February 13, 2013, the Shareholders
of SpendSmart Payments Company (hereinafter referred to as “we” or “the/our Company”) authorized its Board
of Directors to effect a reverse stock split of all outstanding shares of common stock, warrants and options. The Board of Directors
subsequently approved the implementation of a reverse stock split at a ratio of fifteen to one shares, which became effective on
April 25, 2013. All share and per share data in these condensed consolidated financial statements and related notes hereto have
been retroactively adjusted to the account for the effect of the reverse stock split for the three and six month periods ended
September 30, 2012 and 2011, respectively and the balance sheet at September 30, 2012.

Stock options

On August 4,
2011, our Board of Directors approved the adoption of the SpendSmart Payments Company 2011 Equity Incentive Plan (the “2011 Plan”).
The 2011 Plan provides for granting of stock-based awards including: incentive stock options, non-statutory stock options,
stock bonuses and rights to acquire restricted stock. The total number of shares of common stock that may be issued pursuant to
stock awards under the Plan (as approved by the Board of Directors but subject to future shareholder approval which is considered
perfunctory since the Board of Directors and management control in excess of 50% of the voting rights) shall not exceed in the
aggregate 25,000,000 shares of the common stock of our Company. We also have a stockholder-approved
Plan (the IdeaEdge, Inc. 2007 Equity Incentive Plan (the “2007 Plan”), previously approved by our shareholders). The
2007 Plan has similar provisions and purposes as the 2011 Plan. The total number of shares of common stock that may be issued
pursuant to stock awards under the 2007 Plan shall not exceed in the aggregate 4,000,000 shares of the common stock of our Company.

37

The SpendSmart Payments Company

Notes to Consolidated Financial Statements

Through September 30, 2012, we have outstanding
a total of 1,649,110 incentive and nonqualified stock options granted under the 2011 Plan and the 2007 Plan, all of which (for
the purpose of computing stock based compensation) we have estimated will eventually vest. All of the options have terms of five
years with expiration dates ranging from October 2012 to August 2017. During the year ended September 30, 2011, we extended the
terms of one of our employee’s options and adjusted his strike price to our common stock’s market price at the date
of the term extension. We recognized additional stock based compensation in connection with this modification totaling $319,800.

Stock
option activity during the two years ended September 30, 2012 and 2011 was as follows:

2012

2011

Beginning balance outstanding

1,486,333

276,333

Options issued during the year

393,333

1,216,667

Options expired or cancelled during the year

(230,556

)

(6,667

)

Ending balance outstanding

1,649,110

1,486,333

Warrants

During
the years ended September 30, 2012 and 2011, our Company issued warrants to purchase our common stock to third parties providing
consulting and advisory services, including five-year warrants to purchase up to 2,033,333 and 350,800 shares to members of our
Company’s Board of Directors (includes grants made not during members’ terms of service on the Board) during fiscal
2012 and 2011, respectively. Our Company also issued warrants to purchase shares of our common stock to investors in connection
with the issuances of restricted shares of our common stock during the years ended September 30, 2012 and 2011 (the value of which
was offset against the proceeds of the issuance of our common stock and not charged to operations). Outstanding warrants from all
sources have terms ranging from two to five and a half years.

Warrant
activity (including warrants issued to investors and for consulting and advisory services) during the two years ended September
30, 2012 and 2011 was as follows:

2012

2011

Beginning balance outstanding

3,599,761

719,016

Warrants issued during the year:

For consulting and advisory services

2,196,333

996,245

In connection with sales of common and preferred stock

1,780,971

1,971,096

Warrants expired or cancelled during the year

(133,513

)

(86,596

)

Warrants exercised

(47,071

)

-

Ending balance outstanding

7,396,481

3,599,761

38

The SpendSmart Payments Company

Notes to Consolidated Financial Statements

The number
and exercise price of all options and warrants outstanding at September 30, 2012 is as follows:

Shares Outstanding

Weighted Average Exercise Price

Expiration Fiscal Period

24,667

9 .45

1st Qtr, 2013

33,333

7 .95

2nd Qtr, 2013

18,333

9 .45

3rd Qtr, 2013

124,000

7 .20

4th Qtr, 2013

117,778

6 .30

1st Qtr, 2014

35,378

8 .70

2nd Qtr, 2014

60,667

9 .60

3rd Qtr, 2014

35,000

7 .65

4th Qtr, 2014

106,973

7 .65

1st Qtr, 2015

78,100

7 .80

2nd Qtr, 2015

11,933

9 .75

3rd Qtr, 2015

103,918

6 .75

4th Qtr, 2015

695,571

8 .10

1st Qtr, 2016

882,800

7 .20

2nd Qtr, 2016

960,100

6 .45

3rd Qtr, 2016

1,409,403

6 .75

4th Qtr, 2016

697,996

7 .95

1st Qtr, 2017

859,750

6 .15

2nd Qtr, 2017

1,273,600

7 .80

3rd Qtr, 2017

1,516,292

6 .75

4th Qtr, 2017

9,045,592

Stock based compensation

Results
of operations for the year ended September 30, 2012 include stock based compensation costs totaling $6,040,144 ($3,127,359 for
the year ended September 30, 2011) all of which was charged to personnel related expenses in connection with the issuance of stock
options and warrants issued to employees, directors, advisors and consultants (not including shares of stock issued directly for
services).

For purposes
of accounting for stock based compensation, the fair value of each option and warrant award is estimated on the date of grant using
the Black-Scholes-Merton option pricing formula. Compensation expense is recognized upon actual vesting of the options. The following
weighted average assumptions were utilized for the calculations during the years ended September 30, 2012 and 2011:

2012

2011

Expected life (in years)

4.04 years

3.51 years

Weighted average volatility

89.17%

105.03%

Risk-free interest rate

0.54%

0.77%

Expected dividend rate

0%

0%

39

The SpendSmart Payments Company

Notes to Consolidated Financial Statements

The weighted
average expected option and warrant term for employee stock options granted reflects the application of the simplified method set
out in SEC Staff Accounting Bulletin No. 107, Share-Based Payment (SAB 107). The simplified method defines the life as the
average of the contractual term of the options and the weighted average vesting period for all options. We utilized this approach
as our historical share option exercise experience does not provide a reasonable basis upon which to estimate an expected term.
Expected volatilities are based on the historical volatility of our stock. We estimated the forfeiture rate based on our expectation
for future forfeitures and (for the purpose of computing stock based compensation given the contractual vesting of our options
and warrants outstanding) we assume that all options and warrants will vest. The risk-free rate for periods within the contractual
life of the option is based on the U.S. Treasury yield in effect at or near the time of grant. We have never declared or paid dividends
and have no plans to do so in the foreseeable future.

As of
September 30, 2012, $11,431,942 of total unrecognized compensation cost related to unvested stock based compensation arrangements
is expected to be recognized over a weighted-average period of 18.1 months. The following table summarizes option activity in
connection with stock options and warrants (which resulted in stock based compensation charges) as of and for the year ended September
30, 2012:

The
range of exercise prices for options and warrants granted and outstanding (which resulted in stock based compensation charges)
was as follows at September 30, 2012:

Exercise Price Range

Number of
Options or
Warrants

$5.55 - $6.15

803,333

$6.16 - $6.30

466,111

$6.31 - $6.45

1,440,000

$6.46 - $7.05

1,046,667

$7.20 - $15.00

1,338,992

5,095,103

A summary
of the activity of our non-vested options and warrants for the year ended September 30, 2012 is as follows:

Shares

Non-vested outstanding, beginning

1,769,405

Granted

2,589,667

Vested

(1,405,431

)

Cancelled

(240,556

)

Non-vested outstanding, ending

2,713,085

40

The SpendSmart Payments Company

Notes to Consolidated Financial Statements

Common Shares Reserved for Future
Issuance

The following
table summarizes shares of our common stock reserved for future issuance at September 30, 2012:

Stock options outstanding

1,649,110

Stock options available for future grant

284,223

Series A convertible preferred stock

7,121

Series B convertible preferred stock

1,694,167

Warrants

7,396,481

Total common shares reserved for future issuance

11,031,039

10.

Income taxes

Deferred tax assets at September 30, 2012 and 2011 consisted
of the following:

2012

2011

Deferred tax assets:

Primarily net operating loss carryforwards

$

12,885,000

$

9,508,000

Valuation allowance

(12,885,000

)

(9,508,000

)

Net deferred tax assets

$

-

$

-

During the year ended September 30, 2012,
we performed an analysis of our deferred tax assets and as a result reduced deferred tax assets by approximately $621,000, such
adjustment being reflected as reduction of our negative provision for income taxes in the current year. Internal Revenue Code Section
382 and similar California rules place a limitation on the amount of taxable income that can be offset by net operating loss carryforwards
(“NOL”) after a change in control (generally greater than a 50% change in ownership). Transactions such as our purchase
of The SpendSmart Payments Company-CA and sales of our preferred and common stock will be included in determining such a change
in control. These factors give rise to uncertainty as to whether the net deferred tax assets are realizable. We have approximately
$31,000,000 in NOL at September 30, 2012 that will begin to expire in fiscal 2022 for federal purposes (fiscal 2029 for state income
tax purposes) and will be limited for use under IRC Section 382. We have recorded a valuation allowance against the entire net
deferred tax asset balance due because we believe it is more likely than not that we will be unable to realize the benefits due
to our lack of a history of earnings and due to possible limitations under IRC Section 382. As a result of these provisions, our
NOL will likely expire unused.

A reconciliation of the expected tax benefit computed at the
U.S. federal and state statutory income tax rates to our tax benefit is as follows:

Year ended September 30,
2012

Year ended September 30,
2011

Federal income tax rate at 34%

$

(8,774,000

)

34.0

%

$

(4,832,000

)

34.0

%

State income tax, net of federal benefit

(1,620,000

)

6.3

%

(895,000

)

6.3

%

Permanent differences

7,017,000

(27.2

)%

1,577,000

(11.1

)%

Change in valuation allowance

3,377,000

(13.1

)%

4,150,000

(29.2

)%

Benefit for income taxes

$

-

-

%

$

-

-

%

We file income tax returns in the U.S.
and in the state of California with varying statutes of limitations. Our policy is to recognize interest expense and penalties
related to income tax matters as a component of our provision for income taxes. There were no accrued interest and penalties associated
with uncertain tax positions as of September 30, 2012. All operations are in California and the Company believes it has no tax
positions which could more-likely-than not be challenged by tax authorities. We have no unrecognized tax benefits and thus no interest
or penalties included in the financial statements. The Company is subject to examination for tax years after 2008 for federal purposes
and after 2009 for California state tax purposes.

41

The SpendSmart Payments Company

Notes to Consolidated Financial Statements

11.

Facilities

Our Company lease its San Diego office facilities on a lease agreement through June 2014 with current
monthly rentals of $2,695 plus common area maintenance charges. We moved our headquarters to Des Moines, IA in July, 2013. We lease
space in Des Moines and additional storage in San Diego. Rent expense was $45,103 and $31,172 for the years ended September 30,
2012 and 2011, respectively. Future rental commitments under contract total $32,808 and $25,650 in fiscal 2013 and fiscal 2014,
respectively.

12.

Employee benefit plan

We have an employee savings plan (the “Plan”)
pursuant to Section 401(k) of the Internal Revenue Code (the “Code”), covering all of our employees. Participants in
the Plan may contribute a percentage of compensation, but not in excess of the maximum allowed under the Code. Our Company may
make contributions at the discretion of its Board of Directors. During the years ended September 30, 2012 and 2011, we made contributions
to the Plan totaling $48,850 and $42,882, respectively.

13.

Subsequent events

On November 20, 2012 (the “Effective
Date”), we entered into an Endorsement Agreement (the “Agreement”) for the promotion of our products. The Agreement
has a term of fourteen months (the “Term”), unless extended as provided in the Agreement. In connection with the Agreement,
we agreed to pay a nonrefundable advance totaling $3,750,000 (the “Advance”), of which $1,900,000 was paid on November
21, 2012 with the remainder $1,850,000 due by January 2, 2013. In addition to the Advance, we have agreed to pay monthly incentive
compensation per active account (“Incentive Compensation”). The Advance is not recoupable from incentive compensation
payments. We also agreed to pay a per month royalty per active account (“Royalty”). The Advance is recoupable from
Royalty payments made under the Agreement. Upon the expiration of the Agreement, the endorser will be entitled to receive the Royalty
payments, subject to the recoupment of the Advance, and the Incentive Compensation, in perpetuity. We are considering seeking confidential
treatment of certain information detailed in the Endorsement Agreement.

Pursuant to the terms of the Agreement,
we issued to the endorser warrants to purchase up to 133,333 shares of our common stock, as follows: warrants to purchase 66,667
shares of our common stock vested upon the Effective Date, and warrants to purchase another 66,667 shares of our common stock shall
vest in equal monthly installments during the Term, each exercisable at an exercise price equal to the mean of the high and low
prices of our common stock on the last trading day before the Effective Date. We also issued the endorser warrants to purchase
up to an additional 133,333 shares of our common stock (the “Additional Warrant”). The Additional Warrant is exercisable
for the number of shares of our common stock equal to five times the number of active accounts in effect at the end of the Term,
provided there are more than two hundred and fifty thousand active accounts as of the last day of the Term. The Additional Warrant
will be exercisable no more rapidly than in equal monthly installments during the six month period immediately following the Term
at an exercise price equal to the mean of the high and low prices of our common stock on the last trading day before the Effective
Date. In the event the product of five times the number of active accounts exceeds two million, we will issue the endorser an “End
of Term Warrant” for the number of shares in excess of two million accounts. The exercise price of the End of Term Warrant
shall be the arithmetic mean of the high and low prices of our Company’s common stock on the last trading day before the
date of the issuance of the End of Term Warrant. If the Agreement is extended, the endorser will be entitled to receive the Royalty
and Incentive Compensation in perpetuity, plus additional warrants to purchase 133,333 shares of our Company’s common stock
for any such Extension Period (each, an “Extension Warrant”). Extension Warrants will vest equally on a monthly basis
and will have an exercise price equal to the mean of the high and low prices of our Company’s common stock on the last trading
day before the date of issuance of each Extension Warrant.

Payments made in connection with the Advance,
Incentive Compensation and Royalty will be recorded as an expense when incurred. Compensation expense related to the warrants,
additional warrants, end of term warrants and extension warrants will be recognized based upon actual vesting.

42

The SpendSmart Payments Company

Notes to Consolidated Financial Statements

On November 30, 2012, we entered into subscription
agreements (“Subscription Agreement”) with seven accredited investors pursuant to which we issued 486,667 shares of
our common stock, $0.001 par value (the “Common Shares”) at a purchase price of $6.00 per share (the “Offering”).
Pursuant to the terms of the Offering, we issued five year warrants to purchase up to an additional 458,333 shares of our common
stock in the aggregate, at an exercise price of $7.50 per share, to two investors, and five year warrants to purchase up to 7,083
shares of our common stock in the aggregate, at an exercise price of $9.00 per share, to five investors (collectively, the “Warrants”).
The Offering resulted in net proceeds to us of approximately $2,580,500 after deducting fees and expenses totaling $339,500. We
also issued five-year warrants to purchase up to a total of up to 48,667 shares of our common stock with an exercise price of $7.50
per share to our placement agent who assisted us in connection with the transactions

On December 13, 2012, we entered into subscription
agreements (“Subscription Agreement”) with fifty-five accredited investors pursuant to which we issued 427,998 shares
of our common stock, $0.001 par value (the “Common Shares”) at a purchase price of $6.00 per share (the “Offering”).
Pursuant to the terms of the Offering, we issued five year warrants to purchase up to an additional 83,333 shares of our common
stock in the aggregate, at an exercise price of $7.50 per share, to one investors, and five year warrants to purchase up to 86,166
shares of our common stock in the aggregate, at an exercise price of $9.00 per share, to fifty-four investors. The Offering resulted
in net proceeds to us of approximately $2,285,691 after deducting fees and expenses totaling $282,299.

On January 8,
2013, our Board of Directors approved the adoption of the SpendSmart Payments Company 2013 Equity Incentive Plan (the “2013
Plan”). The 2013 Plan provides for granting of stock-based awards including: incentive stock options, non-statutory
stock options, stock bonuses and rights to acquire restricted stock. The total number of shares of common stock that may be issued
pursuant to stock awards under the 2013 Plan (as approved by the Board of Directors but subject to future shareholder approval
solicited by a Proxy Statement filed in January 2013) shall not exceed in the aggregate 3,000,000 shares of the common stock of
our Company. On August 4, 2011, our Board of Directors approved the adoption of the SpendSmart Payments
Company 2011 Equity Incentive Plan (the “2011 Plan”). The 2011 Plan provides for granting of stock-based awards
including: incentive stock options, non-statutory stock options, stock bonuses and rights to acquire restricted stock. The total
number of shares of common stock that may be issued pursuant to stock awards under the Plan shall not exceed in the aggregate 1,666,667
shares of the common stock of our Company. We also have a stockholder-approved Plan (the IdeaEdge, Inc.
2007 Equity Incentive Plan - the “2007 Plan”, previously approved by our shareholders). The 2007 Plan has similar provisions
and purposes as the 2011 Plan. The total number of shares of common stock that may be issued pursuant to stock awards under
the 2007 Plan (as amended) shall not exceed in the aggregate 4,000,000 shares of the common stock of our Company. Upon shareholder
approval of the 2013 Plan, our Board has expressed its intentions to issue no more shares under the 2011 and 2007 Plans.

Our Series B Convertible Preferred Stock
(“Series B Stock”) automatically converted to common stock on January 19, 2013 as in accordance with the registration
statement which states that six months from the date of the final closing, as defined in the related subscription agreement, each
share of Series B will automatically convert into common stock. 10,165 outstanding shares of Series B Stock automatically converted
into 1,694,167 common shares at an effective price of $600 per share.

In February 2013, our Company granted warrants
to purchase up to 200,000 shares of common stock to Kim Petry, our Company’s new CFO. She replaced former CFO, Jonathan Shultz.
The warrants vest over a period of three years; have an exercise price of $5.85 per share; include a cashless exercise option;
and expire five years after the date of grant. The fair value of these warrants on the grant date was $587,802.

On February 13, 2013, the Shareholders
of SpendSmart Payments Company (hereinafter referred to as “we” or “the/our Company”) authorized its Board
of Directors to effect a reverse stock split of all outstanding shares of common stock, warrants and options. The Board of Directors
subsequently approved the implementation of a reverse stock split at a ratio of fifteen to one shares, which became effective on
April 25, 2013. All share and per share data in these condensed consolidated financial statements and related notes hereto have
been retroactively adjusted to the account for the effect of the reverse stock split for the three and six month periods ended
September 30, 2012 and 2011, respectively and the balance sheet at September 30, 2012.

In March 2013, the Company changed
its name to SpendSmart Payments Company, Inc. and BillMyParents-CA changed its name to The SpendSmart Payments Company.

The common stock and related
warrants are subject to certain registration rights. Prior to amending the registration rights agreement in March 2013, the
2012 and 2013 Warrants contained a cashless exercise option (the “Penalty”). Despite the Penalty, the
registration rights agreements did not include certain prescribed liquidating damage penalties in the event our Company
failed to cause the related registration statement to be declared effective and consequently, the presumption under GAAP was
that the common stock and related warrants may be settled in cash. Therefore the common stock was classified as redeemable
common stock, outside of equity as of September 30, 2012. In addition, the 2012 and 2011 Warrants were also included in
derivative liabilities as of September 30, 2012. On March 20, 2013, the Company amended its warrant and registration rights
agreement whereby removing all terms that required net cash settlement. In March 2013, the 1,699,415 shares
of common stock and related 2012 and 2013 warrants are classified as equity and are not reported
as derivative liabilities.

43

The SpendSmart Payments Company

Notes to Consolidated Financial Statements

On June 10, 2013, the Company announced
its intention to redeem certain classes of outstanding warrants that were initially issued to investors participating in private
placement financings in 2010, 2011 and 2012 consisting of the following classes: (i) outstanding warrants to purchase
an aggregate of 634,916 shares of the Company’s common stock issued to investors participating in the Company’s private
placement financing completed on December 13, 2012 and November 30, 2012, of which 541,667 are exercisable at an exercise
price of $7.50 per share (the “$7.50 December Warrants”) and 93,249 are exercisable at an exercise price of $9.00 per
share (the “$9.00 December Warrants”); (ii) outstanding warrants to purchase an aggregate of 1,016,518
shares of the Company’s common stock issued to investors participating in the Company’s private placement financings
closed on July 19, 2012, June 20, 2012, May 24, 2012 and March 31, 2012, of which 833,333 are exercisable at an exercise price
of $7.50 per share (the “$7.50 Investor Warrants”) and 183,185 are exercisable at an exercise price of $9.00 per share
(the “$9.00 Investor Warrants”); (iii) outstanding warrants to purchase an aggregate of 446,188 shares of the Company’s
common stock issued to investors participating in the Company’s private placement financing completed on October 21, 2011
and November 21, 2011, of which 333,334 are exercisable at an exercise price of $7.50 per share (the “$7.50 2011 Warrants”)
and 112,854 are exercisable at an exercise price of $9.00 per share (the “$9.00 2011 Warrants”); and (iv) outstanding
warrants to purchase an aggregate of 431,950 shares of the Company’s common stock issued to investors participating in the
Company’s private placement financings closed on November 16, 2010, of which 125,000 are exercisable at an exercise price
of $6.00 per share (the “$6.00 2010 Warrants”) and 306,950 are exercisable at an exercise price of $9.00 per share
(the “$9.00 2010 Warrants”).The warrant redemption was intended to raise non-dilutive capital.

A Notice of Election to Participate
was provided to the affected warrant holders on June 10, 2013. These warrant holders had until 5:00 p.m. ET on July 15,
2013, to exercise their outstanding warrants at $2.25 per share. Pursuant to the Offer to Amend and Exercise, an aggregate
of 662,540 warrants were tendered by their holders and were amended and exercised in connection therewith for an aggregate
exercise price of approximately $1,490,715, including the following warrants: 85,974 $9.00 December Warrants; 99,703 $9.00 Investor
Warrants; 83,334 $7.50 Investor Warrants; 82,408 $9.00 2011 Warrants; 93,751 $7.50 2011 Warrants; 154,870 $9.00 2010 Warrants;
and 62,500 $6.00 2010 Warrants.

On October 1, 2013, Jerold Rubinstein was elected as a new board of director and head of the Audit Committee.
He received 133,333 warrants with an exercise price of 2.00 per share.

On October 1, 2013, Brian Thompson resigned as a member of the board and as head of the Audit Committee.

44

Item 9 – Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure

None.

Item 9A – Controls and Procedures

(a)

Evaluation of disclosure
controls and procedures.

We maintain disclosure controls and
procedures that are designed to ensure that information required to be disclosed in our Securities and Exchange Commission
Act of 1934 reports is recorded, processed, summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any
controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. As required by Securities and Exchange Commission Rule 13a-15(e) and 15d-15(e), we carried
out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of
the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were not operating effectively as of September 30, 2012. Our disclosure
controls and procedures were not effective because of the “material weakness” described below.

(b)

Management’s annual
report on internal control over financial reporting.

SEC rules implementing Section 404
of the Sarbanes-Oxley Act of 2002 require our 2012 Annual Report on Form 10-K to contain management’s report regarding
the effectiveness of internal control over financial reporting. As a basis for our report, we tested and evaluated the design,
documentation, and operating effectiveness of our internal control.

Management is responsible
for establishing and maintaining effective internal control over financial reporting, as defined in Rule 13a-15(f) under
the Exchange Act, of The SpendSmart Payments Company and its subsidiaries. The Company’s internal control over financial
reporting consists of policies and procedures that are designed and operated to provide reasonable assurance about the reliability
of the Company’s financial reporting and its process for preparing financial statements in accordance with generally accepted
accounting principles (“GAAP”). There are inherent limitations in the effectiveness of any system of internal
control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective
internal controls can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes
in conditions, the effectiveness of internal control may vary over time.

Restatement of Previously Issued Financial Statements. On
August 19, 2013, after consulting with the Company’s Audit Committee, management concluded it had incorrectly calculated
its historical volatility for the fiscal year ended September 30, 2012. The error specifically related to an excel spreadsheet
calculation whereby it was calculating a volatility that was significantly higher than it should have been. The historical volatility
is a key assumption and driver in determining the valuation of the company’s stock based compensation and derivative liabilities.
The impact of the change will reduce the derivative liabilities and stock based compensation as of and for the fiscal year ended
September 30, 2012. The Company also concluded that they did not maintain effective controls over financial reporting relating
to the classification and reporting of financial instruments. The aforementioned errors constitute a material weakness over financial
reporting and therefore the Company did not maintain effective internal control over financial reporting as of September 30, 2012.

Remediation plan. Since the
determination regarding this deficiency, we have devoted significant effort and resources to remediation and improvement of our
internal control over financial reporting. More specifically we have undertaken or will put in place the following
actions:

·

In October 2012, we hired a Controller to assist our Chief Financial Officer with our Company’s
accounting and financial tasks.

·

We will consult with experts in the area of accounting for financial instruments in the event that
any future transactions of this nature are contemplated and will obtain their expert opinion prior to entering into such transactions.

·

We have engaged a third party to administer our equity based compensation plan.

This annual report does not include an
attestation report of the Company’s independent public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s independent public accounting firm pursuant to
permanent rules of the Securities and Exchange Commission that permit the Company to provide only management’s report
in this annual report.

45

Changes in Internal Control Over Financial
Reporting

During our most recent fiscal quarter
our management concluded that a material weakness exists in financial reporting related to the proper classification and reporting
of financial instruments. This materially affected our internal control over financial reporting.

Item 9B – Other Information

None.

Item 10 – Directors, Executive
Officers and Corporate Governance

Term of Office

Our directors are elected
by our stockholders to a term of one year and to serve until their successor is duly elected and qualified, or until their death,
resignation or removal. Each of our officers is appointed by our Board of Directors to a term of one year and serves until their
successor is duly elected and qualified, or until their death, resignation or removal from office.

On December 23, 2011, our
shareholders approved a change to our Articles of Incorporation, which was approved by our Board, which amended our bylaws to
provide that the number of directors of the Company shall be no less than one (1) and no greater than eleven (11). Prior to
the amendment, our Articles and Bylaws provided that the number of directors of the Company shall be no less than one (1) and
no greater than five (5). The amendment to the Articles became effective upon the filing of the amendment with the Secretary
of State of the State of Colorado on December 27, 2011. The amendment to the Bylaws became effective as of December 23, 2011.
Our current Board of Directors consists of nine directors.

The following table sets forth certain information
regarding our executive officers and directors as of the date of this Annual Report:

Name

Age

Position

Michael R. McCoy

52

Chief Executive Officer and Chairman Board of Directors

William Hernandez

55

President

Jonathan Shultz

52

Chief Financial Officer, Secretary and Treasurer1

Kim Petry

44

Chief Financial Officer, Secretary and Treasurer2

Isaac Blech

62

Director

Rob DeSantis

48

Director

Joseph Proto

56

Director

Cary Sucoff

60

Director

Patrick M. Kolenik

61

Director

Jesse Itzler

44

Director

Brian Thompson

45

Director3

Ka Cheong Christopher Leong

63

Director

Jerold Rubinstein

70

Director4

1
Jonathan Shultz resigned from his position as Chief Financial Officer, Secretary and Treasurer of the Company on
February 19,2013.

2
Kim Petry was appointed the Chief Financial Officer, Secretary and Treasurer of the Company on February 19, 2013.

3
Brian Thompson resigned from the Board of Directors effective October 1, 2013.

4 Jerold Rubinstein was appointed to
the Board of Directors effective October 1, 2013.

Mr. Michael R. McCoy has been our
Chief Executive Officer and Chairman, Board of Directors since September 19, 2011. Mr. McCoy is responsible for our Company’s
overall direction and strategic positioning. Formerly President, Consumer Credit Cards at Wells Fargo, Mr. McCoy was responsible
for the overall business and strategic direction of this business unit, directing a staff of over 4,000 individuals and managing
a customer base of over 8.5 million with over $20 billion in credit card balances. A recognized leader in the financial services
industry, Mr. McCoy previously served in a number of executive positions at Wells Fargo, having served as group Senior Vice President,
Strategy and Business Development for Wells Fargo Financial, where he led the Retail Sales Finance and Insurance Services businesses
and directed Marketing for the Wells Fargo Financial enterprise. He also served as Executive Vice President, Human Resources and
Communications for the Home and Consumer Finance Group, which included Leadership Development, Learning and Development, Compensation,
Recruiting and Corporate Sponsorships.

Prior to joining Wells Fargo in January
2001, Mr. McCoy led several national distribution organizations within the financial services sector, including serving as general
manager for ING’s Financial Institution Division and at American Express, where he was chief marketing officer and senior
vice president for American Enterprise Life.

46

Mr. McCoy, as the recent former President
of the Consumer Credit Cards business unit at Wells Fargo, was responsible for a business with numerous similarities to our Company’s
prepaid card business. Mr. McCoy is a very articulate spokesman for us and an excellent interface from our Board of Directors to
the outside world. Mr. McCoy’s insights in the areas of strategy, regulatory compliance, fraud prevention and corporate value
enhancement will serve him well as he guides our Board of Directors in his role as Chairman.

Mr. McCoy serves on numerous Boards within
his community including the United Way. He earned his bachelor’s degree in business management at Missouri State University.

Mr. William Hernandez has been the
President of the Company since November 12, 2012. Mr. Hernandez brings more than 30 years of experience in the global financial
services, payments, transaction processing, card network, and brokerage industries. Mr. Hernandez is President and CEO of Conifer
Consulting Group. Mr. Hernandez previously held the position of Executive Vice President at Epana/Unidos Financial a telecommunications
and financial services company delivering relevant products to the Hispanic community in the US and Mexico. Mr. Hernandez also
held the position of Executive Vice President of First Data Corporation managing the US Card Strategic Financial Services supporting
clients such as American Express. During his 7+ years at MasterCard International, Mr. Hernandez was a Senior Vice President of
the Americas, directing the largest US-based financial institutions. Prior to MasterCard, he was employed by Citibank for 11 years,
where he held various international executive positions where he spearheaded global consumer banking and consumer card products,
services and access channel for Citibank’s businesses in the United States, Latin America, Europe and Asia. Mr. Hernandez
also held executive positions at Financial Guaranty Insurance Co., Shearson American Express and Manufacturers Hanover Trust Company.

Mr. Jonathan Shultz had been the
Chief Financial Officer and Treasurer of the Company from November 13, 2007 until February 2013. Mr. Shultz has Bachelor’s
and Master’s Degrees in Accounting and Finance, respectively, from San Diego State University. He is a Certified Public Accountant,
a Certified Management Accountant and a Certified Financial Manager.

Ms. Kim Petry
has been the Chief Financial Officer and Treasury of the Company since February 2013. Ms Petry was employed by American Express
from October 2008 to December 2012. From 2008 to 2010, Ms. Petry was the Vice President and Controller of Global Credit Cards
and Small Business Services at American Express. In addition, from 2011 through 2012, Ms. Petry served as CFO of the Global Credit
Cards and Small Business Services at American Express, where she led a team of over 150 finance professionals globally, supporting
a business with over $4 billion in revenue. Prior to American Express, from 2006 to 2008, she was Vice President of Corporate
Finance, Planning and Analysis and Business Finance and Analysis with TIAA-CREF where she led over 140 professionals across the
U.S. and was responsible for reporting, budgeting, forecasting, strategy, long-term planning, new product development, mergers
and acquisitions. Ms. Petry served at US Trust Corporation/Schwab Corporation from 1998 to 2006 in several executive roles following
her prior experience working as a Senior Audit Manager for Financial Services at PricewaterhouseCoopers. She earned her MBA from
New York University and her BA with a major in accounting, graduating summa cum laude, from Adelphi University.

Mr. Isaac Blech was appointed to
the Board of Directors on March 10, 2011. He currently serves on the Board of Directors of Contrafect Corp., a biotech company
specializing in novel methods to treat infectious disease; Cerecor, Inc., a biopharmaceutical company focused on activity in the
human brain; Medgenics, Inc, a company that has developed a novel technology for the manufacture and delivery of therapeutic proteins;
and Premier Alliance Group, Inc. (PIMO), a public company that provides business and technology consulting services to primarily
Fortune 500 companies. Previously, Mr. Blech was an investor, advisor and director in a number of well-known companies, primarily
focused in biotechnology.

Mr. Blech is the owner of 1,500,000 shares
of our Company’s common stock and warrants to purchase up to an additional 1,337,500 million shares of our Company’s
common stock. Mr. Blech has been a successful investor and a member of a number of Boards of Directors. We believe Mr. Blech’s
past experience will be a tremendous benefit to our Company. Included among Mr. Blech’s more notable successes were:

·

Celgene Corporation – Mr. Blech was a founding shareholder of Celgene in 1986. Celgene has
introduced two major cancer drugs and has a stock market valuation (as of September 6, 2011) of approximately $27 billion.

·

ICOS Corporation – Mr. Blech was a founding shareholder and member of the Board of Directors
of ICOS beginning in 1991. ICOS discovered the drug Cialis and was later acquired by Eli Lilly for over $2 billion.

·

Nova Pharmaceutical Corporation – Mr. Blech was a founding shareholder and member of the
Board of Directors of Nova from 1982 to 1990. Nova developed a treatment for brain cancer and subsequently merged with Scios Corporation
which was later purchased for $2 billion by Johnson and Johnson.

·

Pathogeneses Corporation – Mr. Blech was a founding shareholder and member of the Board of
Directors of Pathogeneses from 1992 to 1997. Pathogeneses created TOBI for the treatment of cystic fibrosis and was later acquired
by Chiron Corp for $660 million.

·

Genetic Systems Corporation – Mr. Blech was a founding shareholder and member of the Board
of Directors of GSC from 1981 to 1986. GSC developed the first inexpensive and accurate test to diagnose chlamydia and was later
acquired by Bristol Myers for approximately $300 million.

Mr. Rob DeSantis was appointed to
our Board of Directors on March 26, 2012. Mr. DeSantis co-founded Ariba, a provider of business to business e-commerce solutions
that was one of the first B2B Internet companies to go public, and whose market capitalization reached $40 billion. He was also
an early angel investor and board member of LinkedIn, the world’s largest professional online network, which has more than
150 million global members today.

47

Mr. Joseph Proto was appointed to
our Board of Directors on January 26, 2012. Mr. Proto is a seasoned and successful senior executive and entrepreneur with three
decades in the billing and payments industry. Mr. Proto is currently the Chairman and Chief Executive Officer of electronic billing
company Transactis Inc. He founded REMITCO, a remittance processing company where he also served as President for 11 years, which
was acquired in 2000 by First Data Corp. Mr. Proto also founded Financial Telesis (CashFlex), a payment processor to 65 of the
top 100 banks in the U.S., which was acquired by CoreStates/Wachovia and is now a part of Wells Fargo. In 2004, Mr. Proto co-founded
Windham Ventures, an investment company focusing on financial technology and life sciences companies, where he currently serves
as a founding partner.

Mr. Cary Sucoff was appointed to
our Board of Directors on May 23, 2011. Mr. Sucoff has served as an advisor to our Company since September 2009 through his firm
Equity Source Partners, LLC, a firm he has owned and operated since February 2006. He has been key to our success in fundraising
since joining our firm. Additionally, Mr. Sucoff is an attorney (non-practicing) and contributes valuable insights in the area
of legal matters in addition to those areas for which he is contracted with our Company. We believe Mr. Sucoff’s broad and
diversified background serves as a strong asset to our Company.

Mr. Sucoff currently serves on the Board
of Directors of Contrafect Corp., a biotech company specializing in novel methods to treat infectious disease, Cerecor, Inc., a
biopharmaceutical company focused on activity in the human brain, Premier Alliance Group, Inc. (PIMO), a public company that provides
business and technology consulting services to primarily Fortune 500 companies and American Roadside Burgers, Inc., a fast-casual
hamburger restaurant company. Mr. Sucoff has been a member of the Board of Trustees of New England Law/Boston for over 20 years
and is the current Chairman of the Endowment Committee. Mr. Sucoff has recently taught a third year law school seminar entitled
“Perspectives in Law: Lawyers as Entrepreneurs and as Representatives of Entrepreneurs”. Mr. Sucoff received a B.A.
from SUNY Binghamton (1974) and a J.D. from New England School of Law (1977) where he was the Managing Editor of the Law Review
and graduated Magna Cum Laude. Mr. Sucoff has been a member of the Bar of the State of New York since 1978.

Mr. Patrick M. Kolenik was appointed
to our Board of Directors on August 30, 2011. Mr. Kolenik has over forty years of securities industry experience. Mr. Kolenik was
the Chief Executive Officer of Sherwood Securities Corp. where he has been involved with more than 200 successful public and private
financings. Since 2003, Mr. Kolenik has been a consultant to both public and private companies through his company PK Advisors.
Mr. Kolenik currently serves on the Board of Directors of Premier Alliance Group, Inc. (PIMO) a public company that provides business
and technology consulting services. Mr. Kolenik also serves on the Board of Directors of American Roadside Burgers, Inc. Mr. Kolenik
has also been elected to the Board of Directors of Stratus Media Group (SMDI), a public company that owns and operates more than
140 live events.

Mr. Kolenik has advised our Company since
May 2009 in the area of investment banking, fund raising and capital markets. We have greatly benefited from Mr. Kolenik’s
contributions to date and look forward to his future guidance in his role as a member of our Board of Directors.

Mr. Jesse Itzler was appointed to
our Board of Directors on July 24, 2012. In 2011, Mr. Itzler founded 100 Mile Group LLC, a brand incubator and creative marketing
company, which is a successor to Suite 850, LLC (founded by Mr. Itzler in 2009). Mr. Itzler serves as the managing member of 100
Mile Group. In June 2010, Mr. Itzler co-founded PureBrands, LLC, a consumer products company featuring nutritional and dietary
supplements. From 2001 through 2010, Mr. Itzler served as co-founder and vice-chairman of Marquis Jet Partners, a private aviation
company. Mr. Itzler is a graduate of American University.

Mr. Brian Thompson
was appointed to our Board of Directors on July 24, 2012 and resigned from the Board of Directors effective October 1, 2013. Since
2006, Mr. Thompson has been working for Mr. John Pappajohn at Equity Dynamics, Inc., a financial consulting firm. In his role
as senior vice president, Mr. Thompson evaluates investment opportunities, performs due diligence, negotiates investment transactions,
raises capital for new ventures and interacts with management teams through various board and board observer positions. Prior
to this, Mr. Thompson was the CFO and CAO for Kum & Go, LC (“KG”), a convenience retailer. Prior to KG, Mr. Thompson
was the President and CFO of Astracon, Inc. of Denver, CO, a provider of connectivity intelligence OSS software for communications
service providers, until its sale in 2003. From 1995 to 2000, Mr. Thompson was a Partner and CFO of the Edgewater Private Equity
Funds. After receiving his BS/BA in accounting from the University of South Dakota in 1991, Mr. Thompson spent four years in the
audit department of KPMG, LLP in San Antonio and Des Moines.

Dr. Ka Cheong
Christopher Leong was appointed to our board on October 29, 2012. Dr. Leong is a co-founder and the President of Transpac
Capital, a venture capital firm based in Singapore. Transpac was formed in 1989 through the amalgamation of Techno-Ventures Hong
Kong, which Dr. Leong co-founded in 1986, and Transtech Capital Management of Singapore, both pioneers of venture capital in their
respective countries. Prior to his venture capital career, Dr. Leong was the CEO of Amoy Canning Corporation Limited, a food and
packaging conglomerate listed on the stock exchange of Hong Kong. Prior to Amoy he founded Convenience Foods Limited in Hong Kong,
which he sold to RJR Nabisco. Prior to his industrial career, Dr. Leong was a Senior Scientist at American Science and Engineering
in Cambridge, MA. Dr. Leong has been a chairman of the Hong Kong Venture Capital Association, and is one of the founding inductees
to the Singapore Venture Capital Hall of Fame in 2010 for his pioneering work in venture capital. Dr. Leong obtained a BS and a
PhD degree from Massachusetts Institute of Technology, Cambridge, MA.

48

Mr.
Jerold Rubinstein was appointed to our board on October 1, 2013. Mr. Rubinstein currently serves as the chair of our audit
committee. Since June 28, 2012, Mr. Rubinstein has served as the Chairman of the Board, CEO and a director of Stratus Media Group,
Inc., and joined the board of Stratus Group Media, Inc. in April 2011. Mr. Rubinstein is the chairman of the audit committee of
CKE Restaurants, the parent company of Carl’s Jr. Restaurants and Hardees Restaurants. Mr. Rubinstein also serves as the
non-executive chairman of US Global investors Inc., a mutual fund advisory company. Mr. Rubinstein has started and sold many companies
over the years, including Bel Air Savings and Loan and DMX, a cable and satellite music distribution company. Mr. Rubinstein started
and sold XTRA Music Ltd., a satellite and cable music distribution company in Europe. Most recently Mr. Rubinstein consults with
and serves on 3 early stage development companies. Mr. Rubinstein is both a CPA and attorney.

In evaluating director nominees, our Company considers the following
factors:

·

The appropriate size of the Board;

·

Our needs with respect to the particular talents and experience of our directors;

·

The knowledge, skills and experience of nominees;

·

Experience with accounting rules and practices; and

·

The nominees’ other commitments.

Our Company’s goal is to assemble a Board of Directors
that brings our Company a variety of perspectives and skills derived from high quality business, professional and personal experience.
Other than the foregoing, there are no stated minimum criteria for director nominees.

Specific talents and
qualifications that we considered for the members of our Company’s Board of Directors are as follows:

·

Mr. McCoy as the recent former President of the Consumer Credit Cards business unit at Wells Fargo,
was responsible for a business with numerous similarities to our Company’s prepaid card business. In the short time since
joining our Company, Mr. McCoy has proven to be a very articulate spokesman for us and an excellent interface from our Board of
Directors to the outside world. Mr. McCoy’s insights in the areas of strategy, regulatory compliance, fraud prevention and
corporate value enhancement will serve him well as he guides our Board of Directors in his role as Chairman.

·

Mr. Blech is the owner of a significant number of shares of our Company’s common stock and
warrants to purchase additional shares of our Company’s common stock. Mr. Blech has been a successful investor and a member
of a number of Boards of Directors. We believe Mr. Blech’s past experience will be a tremendous benefit to our Company. Included
among Mr. Blech’s more notable successes were:

o

Celgene Corporation – Mr. Blech was a founding shareholder of Celgene in 1986. Celgene has
introduced two major cancer drugs and had a stock market valuation (as of March 8, 2011) of approximately $25 billion.

o

ICOS Corporation – Mr. Blech was a founding shareholder and member of the Board of Directors
of ICOS beginning in 1991. ICOS discovered the drug Cialis and was later acquired by Eli Lilly for over $2 billion.

o

Nova Pharmaceutical Corporation – Mr. Blech was a founding shareholder and member of the
Board of Directors of Nova from 1982 to 1990. Nova developed a treatment for brain cancer and subsequently merged with Scios Corporation
which was later purchased for $2 billion by Johnson and Johnson.

o

Pathogeneses Corporation – Mr. Blech was a founding shareholder and member of the Board of
Directors of Pathogeneses from 1992 to 1997. Pathogeneses created TOBI for the treatment of cystic fibrosis and was later acquired
by Chiron Corp for $660 million.

o

Genetic Systems Corporation – Mr. Blech was a founding shareholder and member of the Board
of Directors of GSC from 1981 to 1986. GSC developed the first inexpensive and accurate test to diagnose chlamydia and was later
acquired by Bristol Myers for approximately $300 million.

·

Mr. DeSantis co-founded Ariba, a provider of business to business e-commerce solutions that was
one of the first B2B Internet companies to go public, and whose market capitalization reached $40 billion. He was also an early
angel investor and board member of LinkedIn, the world’s largest professional online network, which has more than 150 million
global members today.

·

Mr. Proto is a seasoned and successful senior executive and entrepreneur with three decades in
the billing and payments industry. Mr. Proto is currently the Chairman and Chief Executive Officer of electronic billing company
Transactis Inc. Mr. Proto’s also founded REMITCO, a remittance processing company, which was acquired in 2000 by First Data
Corp., and Financial Telesis (CashFlex), a payment processor to 65 of the top 100 banks in the U.S., which was acquired by CoreStates/Wachovia
and is now a part of Wells Fargo. In 2004, Mr. Proto co-founded Windham Ventures, an investment company focusing on financial technology
and life sciences companies, where he currently serves as a founding partner.

49

·

Mr. Kolenik’s vast securities industry history and work as a consultant to both public and
private companies allows us to benefit from wisdom he has accrued from many varied companies and situations. Mr. Kolenik’s
other public and private company Board service has been valuable as he has been a Company interface to our investors and potential
investors since 2009 (prior to his appointment to the Board). We expect to further benefit from his expertise, now as a recently
added member of our Board of Directors.

·

Mr. Sucoff has advised our Company since September 2009 in the area of investment banking, fund
raising and capital markets. He has been key to our success in fundraising since joining our firm. Additionally, Mr. Sucoff is
an attorney (non-practicing) and contributes valuable insights in the area of legal matters in addition to those areas for which
he is contracted with our Company. Mr. Sucoff’s broad and diversified background has been a strong asset to our Company.

·

Mr. Itlzer founded 100 Mile Group LLC, a brand incubator and creative marketing company, which
is a successor to Suite 850, LLC (founded by Mr. Itzler in 2009). Mr. Itzler serves as the managing member of 100 Mile Group. In
June 2010, Mr. Itzler co-founded PureBrands, LLC, a consumer products company featuring nutritional and dietary supplements.

·

Mr. Thompson has been working for Mr. John Pappajohn at Equity Dynamics, Inc., a financial consulting
firm. Prior to this, Mr. Thompson was the CFO and CAO for Kum & Go, LC (“KG”), a convenience store retailer. Prior
to KG, Mr. Thompson was the President and CFO of Astracon, Inc. of Denver, CO, a provider of connectivity intelligence OSS software
for communications service providers, until its sale in 2003. From 1995 to 2000, Mr. Thompson was a Partner and CFO of the Edgewater
Private Equity Funds.

·

Dr. Leong is a co-founder and the President of Transpac Capital, a venture capital firm based in
Singapore. Transpac was formed in 1989 through the amalgamation of Techno-Ventures Hong Kong, which Dr. Leong co-founded in 1986,
and Transtech Capital Management of Singapore, both pioneers of venture capital in their respective countries. Prior to his venture
capital career, Dr. Leong was the CEO of Amoy Canning Corporation Limited, a food and packaging conglomerate listed on the stock
exchange of Hong Kong. Prior to Amoy he founded Convenience Foods Limited in Hong Kong, which he sold to RJR Nabisco.

There are no family relationships among members of our management
or our Board of Directors.

Section 16(a) Beneficial Ownership Reporting
Compliance

Section 16(a) of the Securities Exchange
Act of 1934, as amended, requires our directors, executive officers and beneficial owners of more than 10% of a registered class
of our equity securities to file with the Securities and Exchange Commission initial reports of ownership and reports of changes
in ownership of our common stock and other equity securities. Directors, executive officers and greater than 10% beneficial owners
are required by SEC regulations to furnish to us copies of all Section 16(a) reports they file.

Based solely on our review of the reports,
we believe that all required Section 16(a) reports were timely filed during our last fiscal year. None of our directors, executive
officers or greater than 10% beneficial owners filed any Form 5s.

Code of Business Conduct and Ethics

We have adopted a Code of Business Conduct
and Ethics that applies to, among other persons, our principal executive officer, principal financial officer, principal accounting
officer or controller, and persons performing similar functions. Our Code of Business Conduct and Ethics is available, free of
charge, to any stockholder upon written request to our Corporate Secretary at The SpendSmart Payments Company, 2680 Berkshire Parkway,
Suite 130, Des Moines, Iowa 50325.

Involvement in Certain Legal Proceedings

To the best of our knowledge, none
of our directors or executive officers has, during the past ten years, involved in any of the items below that the Company deems
material to their service on behalf of the Company:

50

•

been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

•

had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;

•

been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;

•

been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

•

been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

•

been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Except
as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or
executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates
which are required to be disclosed pursuant to the rules and regulations of the Commission.

Corporate
Governance

The
business and affairs of the company are managed under the direction of our board. In the fiscal year ended September 30, 2012,
we held five special board meetings. Each of our directors has attended all meetings either in person or via telephone conference.

Item 11 - Executive Compensation

Overview of Executive Compensation Objectives and Philosophy

Our Company’s Management’s
objectives are to attract and retain highly competent executives and to compensate them based upon a pay-for-performance mentality.
Our current plan relies on goals and objectives agreed upon among the existing executive (officer and non-officer) group and our
Company’s Board of Directors. The achievement of such goals and objectives constitute requirements for continued employment,
advancement with our Company and receipt of incentive bonus payments.

With the intent to increase short-term
and long-term stockholder value, we have designed our executive compensation policies and practices to reward our Company’s
executives based on:

·

Company performance;

·

Individual performance; and

·

The demonstration of leadership, team building skills and high ethical standards.

We include a significant equity component
in our overall compensation to align the long-term interests of our executives with those of our stockholders. Our executive compensation
plan is designed to encourage the success of our executives as a team, rather than only as individual contributors, by attaining
overall corporate goals. In setting those goals, we consider the current and anticipated economic conditions in our market place
and industry and the performance of other companies in our market place and industry.

Overall, we seek to employ executives that
were not only qualified to fulfill the roles of the positions we require at the time of their hire, but who also have prior experience
and demonstrated capabilities to function in a far larger and complex entity than where our Company is currently. We believe it
is critical that our executives be able to work in an environment without the support of staff subordinates which usually accompany
a larger and more seasoned company. Further, along with and given the benefit of maintaining continuity within the executive team,
we highly desire executives that can adapt to what we hope will be a rapidly growing company. Our executives must be able to not
only fill many roles within their areas of expertise, but also to oversee other areas that may be outside their specialty. Accordingly,
we highly value the trait of adaptability.

51

In order to attract the type of talented
executive we seek, we have found that these individuals value the potential large future rewards that come from long-term compensation
arrangements in the form of stock ownership and stock option arrangements over current cash compensation. Also, given the current
early stage nature of our business and the accompanying premium we must place on cash, this allocation of compensation also currently
benefits our Company. Accordingly, we have structured our compensation arrangements accordingly.

Our founders of BillMyParents have large
holdings of our common stock. By the very nature of their shareholdings in our Company, these executives’ and former executives’
personal financial well-being is closely tied to our Company’s long-term success. Our Chief Executive Officer and Chief Financial
Officer were both employed after the acquisition of BillMyParents. Therefore we felt it was necessary to make substantial grants
of stock options when each joined our Company in order to incentivize them. The grants made to Mr. McCoy and Mr. Shultz reflected
both our compensation philosophy and the results of negotiations between them and our Board of Directors at the time of the respective
grants.

On July 23,
2012, we issued warrants to purchase common stock to certain Board members for their extraordinary efforts on behalf of the Company,
as follows: Isaac Blech, 333,333; Joseph Proto, 200,000; Cary Sucoff, 133,333; and Patrick Kolenik, 133,333. The warrants vest
monthly over a period of 12 months; have an exercise price of $6.45 per share; include a cashless exercise option; and expire 5
years after the date of grant. On July 24, 2012 we granted our Chief Executive Officer, Mr. McCoy, options to purchase 293,333
shares of the Company’s common stock. The options vest monthly over a period of 12 months; have an exercise price of $6.45
per share; and expire 5 years after the date of grant. On October 29, 2012, we granted Chris Leong warrants
to purchase up to 133,333 shares of common stock at an exercise price of $10.35 per share and having a term of 5 years. The warrants
will vest monthly over a period of 36 months provided Dr. Leong continues to serve on the Board. On November 12, 2012, we granted
our President, William Hernandez, options to purchase up to 333,333 shares of common stock at an exercise price of $7.35 per share.
The options will vest as follows: 66,666 options vested immediately and the remaining 266,667 options vest equally over a thirty-six
month period.

Elements of Executive Compensation

Executive compensation consists of the
following elements:

·

Base salary;

·

Annual incentive bonuses;

·

Long-term incentives; and

·

Retirement benefits under a 401(k) plan and generally available benefit programs.

Base Salary. The base salary
for each executive is initially established through negotiation at the time the executive is hired, taking into account the scope
of responsibilities, qualifications, experience, prior salary and competitive salary information within our industry. Year-to-year
adjustments to each executive officer’s base salary are determined by an assessment of the sustained performance against
individual goals, including leadership skills and the achievement of high ethical standards, the individual’s impact on the
Company’s business and financial results, current salary in relation to the salary range designated for the job, experience,
demonstrated potential for advancement, and an assessment against base salaries paid to executives for comparable jobs in the marketplace.

Annual Incentive Bonuses.
Our Company’s bonus plan’s year begins on January 1st and runs through December 31st. Payments
under future executive bonus plans that may be instituted will be based on achieving both personal and corporate goals. Personal
goals will support our overall corporate goals and, wherever possible, contain quantitative components. An executive officer’s
success or failure in meeting some or all of these personal goals will affect the individual’s bonus amount. Corporate goals
will consist of specific financial targets for the Company. We believe that offering significant potential income in the form of
bonuses will allow us to attract and retain executives and to align their interests with those of our shareholders.

Long-Term Incentives. Our
long-term incentives consist of our Company’s Common Stock and stock option awards. The objective of these awards is to align
the longer-term interests of our shareholders and our executive officers and to complement incentives tied to annual performance.
We have used stock options and warrants as our primary long-term equity incentive vehicle with respect to our Chief Executive Officer
and our Chief Financial Officer who joined our Company after its founding. The remainder of our executives who are also Company
founders are presently incentivized on a long-term basis by way of their shares of Common Stock received at the founding of our
subsidiary BillMyParents-CA (that were subsequently exchanged for shares of our Company’s Common Stock in October 2007) and
grants of stock options and warrants. We have not adopted stock ownership guidelines.

52

401(k) and Other Benefits. During
the years ended September 30, 2012 and 2011, our executive officers were eligible to receive certain benefits available to all
our employees on the same terms, including medical and dental insurance. During the year, we also maintained a tax-qualified 401(k)
Plan, which provides for broad-based employee participation. Under the 401(k) Plan, all employees are eligible to receive matching
contributions from the Company of 100% of employee contributions up to a maximum of 4% of the employees’ salaries, per year.
We do not provide defined benefit pension plans or defined contribution retirement plans to our executives or other employees.
We believe that the 401(k) Plan and medical and dental insurance benefits allow us to remain competitive for employee talent, and
we believe that the availability of these benefit programs generally enhances employee productivity and retention.

Employment Agreements

Our Company has entered into employment
agreements with our three executives: Michael McCoy (our Chief Executive Officer); Jonathan Schultz (our Chief Financial Officer),
and William Hernandez (our President). A summary of the material terms of our employment agreements with our named executive officers
is as follows:

Michael McCoy, Chief Executive Officer:
On September 19, 2011, we entered into an employment agreement with Mr. McCoy, which includes the following summary terms, (i)
Mr. McCoy shall be paid an annual salary of $360,000; (ii) Mr. McCoy shall be paid his base salary, receive fringe benefits and
continue to vest in any granted stock options and warrants for twelve months after the termination of his employment in the event
that his employment is terminated other than for cause; (iii) Mr. McCoy shall be eligible for an annual cash bonus; and (iv) Mr.
McCoy was granted options to purchase up to 706,667 shares of Company common stock at an exercise price of $7.20 per share.

On July 24, 2012, we amended Mr. McCoy’s
employment agreement to provide that (1) Mr. McCoy’s Base Salary shall be increased by $40,000 per year, and (2) Mr. McCoy
shall be entitled to a lump sum cash payment equal to one and one-half times his annual Base Salary in the event the Company changes
his title to any position below that of Chief Executive Officer. All other terms of Mr. McCoy’s employment agreement remain
in effect.

William Hernandez, President: Mr.
Hernandez was appointed as our President on November 12, 2012. Our employment with Mr. Hernandez includes the following summary
terms: (i) an annual salary of $350,000; (ii) eligibility for an annual cash bonus equal to fifty percent (50%) of Mr. Hernandez’s
annual salary, upon criteria to be determined (the first year’s bonus to be guaranteed by the Company); and (iii) options
to purchase up to 333,333 shares of Company common stock at an exercise price of $7.35 per share, of which 66,666 options vest
immediately and the remaining 266,667 options vest equally over a thirty-six month period.

Jonathan Shultz, Chief Financial Officer:
Our employment agreement with Mr. Shultz includes the following summary terms, (i) Mr. Shultz shall be paid an annual salary of
$180,000; (ii) Mr. Shultz shall be paid his base salary, receive fringe benefits and continue to vest in any granted stock options
and warrants for twelve months after the termination of his employment in the event that his employment is terminated other than
for cause; and (iii) Mr. Shultz shall be eligible for an annual cash bonus, and to be paid certain bonuses upon the completion
of an acquisition of the company (and the adjustment of his option strike price to $6.00) or the company’s listing on the
NASDAQ Stock Market.

The above summary of the employment agreements
is qualified in its entirety by reference to the agreements which are filed as exhibits to our reports as described in Item 15
below.

The Impact of Tax and Accounting Treatments
on Elements of Compensation

We have elected to award non-qualified
and incentive stock options to all grantees of our Company’s stock options that remain outstanding as of the date of this
report. All other options or warrants granted to advisors, Directors and consultants were non-qualified options or warrants in
order to allow our Company to take advantage of the more favorable tax advantages associated with non-qualified stock options or
warrants.

Internal Revenue Code Section 162(m) precludes
the Company from deducting certain forms of non-performance-based compensation in excess of $1,000,000 to named executive officers.
However, since stock-based awards comprise a significant portion of total compensation, the Board of Directors has taken appropriate
steps to preserve deductibility for such awards in the future, when appropriate.

Our Rationale for Selecting a Particular
Event to Trigger Payment under a Change of Control Agreement

We are required to make payments upon a
change of control of our Company to only one employee, our Chief Financial Officer Jonathan Shultz. Payments or benefits that would
be required to be made to Mr. Shultz as a result of any change of control of our Company are as follows:

53

·

Mr. Shultz’s stock option grants provide that, in case of an Acquisition of the Company (as
defined in Section 11(c)(i) of our Company’s 2007 and 2011 Equity Incentive Plans), all of his stock options then outstanding
shall become fully vested; and

·

On August 12, 2008, our Company entered into a change of control agreement with Mr. Shultz that
calls for Mr. Shultz to be paid the cash value of 33,333 shares (as adjusted for any splits or combinations) of our Common Stock,
or equivalent acquisition consideration, should our Company be acquired (as defined in the agreement) and he is in our Company’s
employ on the date of the closing of the transaction.

We adopted these agreements with Mr. Shultz
with defined trigger events for such compensation upon a termination following, or as a result of a change of control, in order
to provide incentives for him to work for, instead of against, changes of control of the Company that align with our shareholders’
interests. We do not believe similar agreements are necessary for our other members of management due to their significant existing
ownership of Company common stock.

The amount of compensation for which Mr.
Shultz would be eligible upon the Company’s acquisition, and in the event he remains employed with our Company on the date
of the closing of the acquisition, would be the per share price for which the Company was acquired multiplied by 33,333. Based
on the closing price of our Common Stock on September 30, 2012 of $10.65, the cash payment that would be due to Mr. Shultz upon
a change of control (as defined in the agreement) would be $355,000.

The agreement with Mr. Shultz defines a
change of control as an “Acquisition” and states as follows.

Acquisition shall mean (i)
any consolidation or merger of the Company with or into any other corporation or other entity or person (the “Purchaser”)
in which the shareholders of the Company prior to such consolidation or merger (but excluding any ownership by the Purchaser) own
less than fifty percent (50%) of the Company’s voting power immediately after such consolidation or merger, excluding any consolidation
or merger effected exclusively to change the domicile of the Company (collectively, a “Stock Purchase”); or
(ii) a sale of all or substantially all of the assets of the Company (an “Asset Purchase”).

No other compensation or benefits would
be due to Mr. Shultz based on agreements currently in place between him and our Company. Mr. Shultz is the only executive with
a change of control agreement. Mr Shultz resigned from his position as Chief Financial Officer, Secretary and Treasurer of the
Company effective February 19, 2013.

The Level of Salary and Bonus in Proportion
to Total Compensation

Because of the commonality of interests
among our executives and our shareholders in achieving the sustained, long-term growth of the value of our stock, we seek to keep
cash compensation in line with market conditions and, if justified by the Company’s financial performance, place emphasis
on the ownership of Company stock and use of stock options as a means of obtaining significantly better than average compensation.
Our efforts to keep cash compensation in line with market conditions to date have been informal and based primarily on discussions
with business colleagues in the local marketplace, consultation with a local benefits consulting firm and the review of widely
available comparative salary data (specifically we make reference to the periodic publication by the San Diego Union-Tribune
of San Diego public company executive salaries compiled from their Securities and Exchange Commission annual filings and to
the survey State of CEO and CFO Pay – San Diego Public Companies published by Barney & Barney, LLC). We also based
our conclusions that our cash compensation was in line with market conditions based on our executives’ prior employment histories
with other similar sized companies, in similar responsible positions. We have not engaged in a practice of formal benchmarking
of our executive compensation, but expect to formalize our compensation practices in the future should we be successful in growing
our business. Part of such formalization may take the form of benchmarking. Because of the significant equity stake or equity incentives
that our executives maintain in our Company, we believe their cash compensation and benefits received are modest in comparison
to similar sized public companies.

Other Compensation

We intend to continue to maintain our current benefits for our
executives, including medical and dental insurance coverage and the ability to contribute to a 401(k) retirement plan; however,
our Board of Directors may in its discretion revise, amend or add to the executive’s benefits if it deems it advisable. The
benefits currently available to the executives are also available to our other employees.

Compensation Committee

Our
Board of Directors at its November 1, 2011 meeting established a compensation committee currently consisting of non-executive
members of the Board, Messrs. Blech, Itzler and Proto. Decisions concerning compensation matters are to be made by the Board of
Directors based upon recommendations of the compensation committee and members of our executive management team.

54

Audit Committee

Our audit committee, which currently consists of three directors, provides assistance to our board in
fulfilling its legal and fiduciary obligations with respect to matters involving the accounting, financial reporting, internal
control and compliance functions of the company. Currently, our audit committee consists of the following members: Messrs. DeSantis,
Proto and Thompson. Jerold Rubinstein was added to head the audit committee, effective October 1, 2013. Our audit committee employs
an independent registered public accounting firm to audit the financial statements of the company. Further, our audit committee
provides general oversight with respect to the accounting principles employed in financial reporting and the adequacy of our internal
controls. In discharging its responsibilities, our audit committee may rely on the reports, findings and representations of the
company’s auditors, legal counsel, and responsible officers.

55

SUMMARY COMPENSATION TABLE

The following table provides information
regarding the compensation awarded to, earned by, or paid to our executives during the years ended September 30, 2012 and 2011.

Change in

Pension

Value and

Non-Qual.

Deferred

Stock

Option and

Non-equity

Compens.

All Other

Salary

Bonus

Awards

WarrantAwards

Incentive

Earnings

Comp.(1)(4)

Total

Position

Year

($)

($)

($)(2)

($)(2)

Comp ($)

($)

($)

($)

Michael McCoy (6)

2012

376,667

400,000

-

849,521

-

-

667

1,626,855

Chief Executive Officer, Chairman and Director

2011

15,000

-

-

2,785,818

-

-

-

2,800,818

William (9)

2012

-

-

-

28,093

-

-

-

28,093

Hernandez

2011

-

-

-

-

-

-

-

-

President

Mark Sandson (8)

2012

-

-

-

-

-

-

-

-

Interim Chief Executive Officer

2011

48,510

-

-

489,938

-

-

-

538,448

Jonathan Shultz (3)

2012

180,000

-

-

-

-

-

7,200

187,200

Chief Financial Officer/Secretary/Treasurer

2011

178,200

86,200

-

448,628

-

-

10,576

723,604

James Collas (5)

2012

186,875

-

-

-

-

-

7,283

194,158

Former President and Chief Executive Officer, Former Director, Current Employee
and non-officer executive

2011

230,000

152,500

-

897,257

-

-

9,200

1,288,957

Evan Jones (7)

2012

150,000

-

-

-

-

-

2,000

152,000

Former Vice President Marketing

2011

218,297

50,000

-

1,266,119

-

-

3,000

1,537,416

(1)

Our Company made group life, health, hospitalization and medical plans available for its employees,
including the officers listed herein.

(2)

Refer to “Stock based compensation,” in the accompanying Notes to Consolidated Financial
Statements included in this Annual Report on Form 10-K for the relevant assumptions used to determine the valuation of our option/warrant
awards.

(3)

Mr. Shultz was paid on a part-time basis from August 1, 2010 to September 3, 2010. Mr. Shultz resigned from his position as Chief Financial Officer, Secretary and Treasurer effective February
19, 2013.

(4)

Amounts shown include matching contributions to the officers’ 401(k) retirement plans for
all years presented.

(5)

Amounts represent full year totals for the year ended September 30, 2011 and September 30, 2012
for Mr. Collas although he resigned as an officer of our Company on April 2011.

(6)

Mr. McCoy’s employment commenced in September 2011 and amounts show here represents the amounts
charged to operations through September 30, 2012. On October 3, 2011, Mr. McCoy was paid his entire first year’s salary totaling
$360,000 as per his employment contract. On July 24, 2012, we amended Mr. McCoy’s employment agreement
to provide that Mr. McCoy’s Base Salary shall be increased by $40,000 per year.

(7)

Evan Jones was employed with our Company from May 1, 2011 to November 30, 2011. Prior to his employment,
Mr. Jones received compensation under his consulting agreement with the contract from January 10, 2011 to April 30, 2011. All amounts
included above are for the years ended September 30, 2011 and September 30, 2012 and include amounts paid to Mr. Jones both as
a consultant and an employee.

(8)

Mr. Sandson served as our interim Chief Executive Officer from April 26, 2011 through September
19, 2011 and was paid as an independent contractor. Cash amounts included herein are for amounts billed to our Company for services
performed in Mr. Sandson’s capacity as Interim Chief Executive Officer. Amounts included under Option Awards are all amounts
recognized in our financial statements for the fiscal years shown as Stock based compensation under Warrant Agreements between
Mr. Sandson and our Company. Such amounts categorized as Option Awards include warrants granted in recognition of Mr. Sandson’s
service as a member of our Board of Directors.

(9)

Mr. Hernandez was appointed as our President on November
12, 2012.

The above amounts with respect to compensation
from option awards equaled the amounts that were recognized as compensation expense in our financial statements for the years ended
September 30, 2012 and 2011. The option award amounts were calculated in accordance with generally accepted accounting principles
concerning share-based payments.

56

No options or warrants have been exercised
by any of the grantees through the date of this Annual Report. We have recognized the aggregate grant date fair value of option
awards issued in our accompanying statements of operations, computed in accordance with FASB Accounting Stands Codification Topic
718.

None of our directors, executives or employees
participates in or has account balances in qualified or non-qualified defined benefit plans sponsored by our Company. None of our
named executive officers participate in or have account balances in non-qualified defined contribution plans or other deferred
compensation plans maintained by our Company.

Outstanding Equity Awards at September
30, 2012

Our Company has not granted stock awards to any executive since
its inception. The following table provides information regarding outstanding equity awards (all in the form of stock options or
warrants) to named executives as of September 30, 2012:

Name

Number of Securities Underlying Unexercised Options (#) Exercisable

Number of Securities Underlying Unexercised Options (#) Unexercisable

Option Exercise Price ($)

Option Expiration Date

Michael McCoy

323,333

383,333

6.75

8/18/16

48,867

244,444

6.45

7/23/17

Jonathan Shultz

200,000

-

7.20

7/16/16

43,333

76,667

6.30

8/4/16

James Collas

26,481

-

6.30

8/4/16

Evan Jones

80,000

-

8.10

1/10/16

53,333

2,407

6.75

3/10/16

Director Compensation

Our directors were compensated for their service on our Board
of Directors with warrants to purchase common stock as outlined above.

57

The following table provides information regarding our director
compensation for the year ended September 30, 2012:

Fees

Non-Equity

Non-qualified

Earned

Incentive

Deferred

All

Or Paid

Stock

Option

Plan

Compensation

Other

In Cash

Awards

Awards

Compensation

Earnings

Compensation

Total

Position

($)

($)

($)

($)

($)

($)

($)

Isaac Blech (1)

-

-

2,583,418

-

-

-

2,583,418

Patrick Kolenik (2)

-

-

586,470

-

-

10,000

586,4701

Mark Sandson (3)

-

-

123,864

-

-

-

123,864

Cary Sucoff (4)

-

-

586,470

-

-

10,000

596,470

Rob Desantis (5)

-

-

2,223,070

-

-

-

2,223,070

Joseph Proto (6)

-

-

1,400,281

-

-

-

1,400,281

Brian Thompson(7)

-

-

586,470

-

-

-

586,470

Jesse Itzler (8)

-

-

586,470

-

-

-

586,470

Ka Cheong

Christopher Leong (9)

-

-

-

-

-

-

-

(1)

Includes warrants to purchase up to 166,667 shares of common at an exercise price of $7.65 per share granted on November 1,
2011 and expiring November 1, 2016 and warrants to purchase up to 333,333 shares of common at an exercise price of $6.45 per share
granted on July 23, 2012.

(2)

Includes warrants to purchase up to 66,667 shares of common at an exercise price of $7.20 per share granted on September 21,
2011 and expiring September 21, 2016, and warrants to purchase up to 133,333 shares of common at an exercise price of $6.45 per
share granted on July 23, 2012.

(3)

Includes warrants to purchase up to 66,667 shares of common at an exercise price of $6.30 per share granted on August 4, 2011
and expiring August 4, 2016. Mr. Sandson resigned from the Board on January 25, 2012, at which time his remaining unvested shares
were deemed to be fully vested.

(4)

Includes warrants to purchase up to 66,667 shares of common at an exercise price of $6.30 per share granted on August 4, 2011
and expiring August 4, 2016 and warrants to purchase up to 133,333 shares of common at an exercise price of $6.45 per share granted
on July 23, 2012.

(5)

Includes warrants to purchase up to 666,667 shares of common at an exercise price of 6.00 per share granted on March 26, 2012.

(6)

Includes warrants to purchase up to 200,000 shares of common at an exercise price of $6.45 per share granted on July 23, 2012.

(7)

Includes warrants to purchase up to 133,333 shares of common at an exercise price of $6.45 per share granted
on July 23, 2013. Mr. Thompson resigned from the Board of Directors effective October 1, 2013.

(8)

Includes warrants to purchase up to 133,333 shares of common at an exercise price of $6.45 per share granted on July 23, 2012.

(9)

Chris Leong was appointed as a director of the Company on October 29, 2012.

As of July 1,
2013 (the “SO Date”), we had 10,356,423shares of common stock and 0 shares
of Series A Cumulative Convertible Preferred stock (the “Series A Preferred Stock”) issued and outstanding. The Series
A preferred stock is convertible into 106,820 shares of our Company’s Common Stock. Options
and warrants exercisable or convertible as of the SO Date or within sixty (60) days thereafter are used in determining each individual’s
percentage of shares beneficially owned on the table below. The following table sets forth as of the SO Date, information regarding
the beneficial ownership of our common stock with respect to (i) our officers and directors; (ii) by all directors and executive
officers as a group; and (iii) all persons which the Company, pursuant to filings with the Securities and Exchange Commission (the
“SEC”) and our stock transfer record by each person or group known by our management to own more than 5% of the outstanding
shares of our common stock. Under the rules of the Securities and Exchange Commission, a person (or group of persons) is deemed
to be a “beneficial owner” of a security if he or she, directly or indirectly, has or shares the power to vote or to
direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more
than one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of
any security, which that person has the right to acquire within sixty (60) days, such as our Series A Preferred stock, warrants
or options to purchase shares of our common stock. Unless otherwise noted, each person has sole voting and investment power over
the shares indicated below subject to applicable community property law.

Amounts include shares of common stock that would result from the exercise of outstanding options
to purchase 556,525 shares of our common stock.

(3)

Amounts include shares of common stock that would result from the exercise of outstanding options
and warrants to purchase 260,000 shares of our common stock. Mr. Shultz resigned from his position as Chief Financial Officer, Secretary and Treasurer effective February
19, 2013.

(4)

Amounts include shares of common stock that would result from the exercise of outstanding warrants
to purchase 1,630,278 shares of our common stock.

(5)

Amounts include shares of common stock that would result from the exercise of outstanding warrants
to purchase 182,913 shares of our common stock.

(6)

Amounts include shares of common stock that would result from the exercise of outstanding warrants
to purchase 146,430 shares of our common stock.

(7)

Amounts include shares of common stock that would result from the exercise
of the vested outstanding options to purchase 88,889 shares of our common stock.

(8)

Amounts include shares of common stock that would result from the exercise
of the vested outstanding warrant to purchase 277,778 shares of our common stock.

(9)

Amounts include shares of common stock that would result from the exercise
of the vested outstanding warrant to purchase 144,444 shares of our common stock.

(10)

Amounts include shares of common stock that would result from the exercise
of the vested outstanding warrant to purchase 22,222 shares of our common stock.

(11)

Amounts include shares of common stock that would result from the
exercise of the vested outstanding warrant to purchase 22,222 shares of our common
stock. Mr. Thompson resigned from the Board of Directors effective October 1, 2013.

(12)

Amounts include shares of common stock that would result from the exercise
of the vested outstanding warrant to purchase 11,111 shares of our common stock.

Related Party Transactions.
Our Company closely reviews transactions between the Company and persons or entities considered to be related parties (collectively
“related parties”). Our Company considers entities to be related parties where an executive officer, director or a
5% or more beneficial owner of our common stock (or an immediate family member of these persons) has a direct or indirect material
interest. Transactions of this nature require the approval of our management and our Board of Directors. We believe such transactions
were at terms comparable to those we could have obtained from unaffiliated third parties. Since October 1, 2009, we have not had
any transactions in which any of our related parties had or will have a direct or indirect material interest, nor are any such
transactions currently proposed, except as noted below.

59

On July 24, 2012, our Board of Directors
approved our entering into a management consulting agreement with each of Messrs. Kolenik and Sucoff (or an entity owned by either
of them) with respect to consulting services to be provided to us for a period of 12 months, pursuant to which each of Messrs.
Kolenik and Sucoff will receive $5,000 per month.

On July 23, 2012, we issued warrants to
purchase common stock to certain Board members for their extraordinary efforts on behalf of the Company, as follows: Isaac Blech,
333,333; Joseph Proto, 200,000; Cary Sucoff, 133,333; and Patrick Kolenik, 133,333. The warrants vest monthly over a period of
12 months; have an exercise price of $6.45 per share; include a cashless exercise option; and expire 5 years after the date of
grant. On July 24, 2012 we granted our Chief Executive Officer, Mr. McCoy, options to purchase 293,333 shares of the Company’s
common stock. The options vest monthly over a period of 12 months; have an exercise price of $6.45 per share; and expire 5 years
after the date of grant. On October 29, 2012, we granted Chris Leong warrants to purchase up to 133,333 shares of common stock
at an exercise price of $10.35 per share and having a term of 5 years. The warrants will vest monthly over a period of 36 months
provided Dr. Leong continues to serve on the Board. On November 12, 2012, we granted our President, William Hernandez, options
to purchase up to 333,333 shares of common stock at an exercise price of $7.35 per share. The options will vest as follows: 66,667
options vested immediately and the remaining 266,667 options vest equally over a thirty-six month period.

During the year ended
September 30, 2011, we entered into subscription agreements with a member of our Board of Directors, Isaac Blech, pursuant to which
we issued 1,333,333 shares of our common stock and five-year warrants to purchase up to an additional 1,208,333 shares of our common
stock with an exercise price of $6.00 per share, in exchange for gross proceeds totaling $8,000,000. We also issued warrants to
purchase up to a total of 100,000 shares of our common stock with an exercise price of $9.00 per share to Equity Source Partners,
LLC (“ESP”), who assisted us in connection with the transactions (these totals do not reflect amounts received in connection
with convertible debt described below). A principal of ESP Cary Sucoff, became a member of our Company’s Board of Directors
in May 2011.

During the year ended
September 30, 2010, ESP assisted our Company in connection with the equity financing transactions and they or its designees earned
the fees and commissions totaling $71,750.

On August 13, 2010, we
entered into a Convertible Promissory Note Agreement (the “$1M Note”) with Mr. Blech payable for $1,000,000 at 5% interest,
due February 13, 2011 (the “Maturity Date”). The $1M Note and all accrued interest was converted by Mr. Blech’s
into 166,667 shares of our Company’s restricted common stock at a price of $6.00 per share on November 24, 2010. In addition
Mr. Blech was issued warrants to purchase up to 41,667 shares of our Company’s restricted common stock at a price of $6.00
per share pursuant to a Warrant Agreement (the “Warrant”) with a five year term executed concurrently between Mr. Blech
and our Company, and upon conversion of the $1M Note, was issued warrants to purchase an additional 83,333 shares of our Company’s
restricted common stock at an exercise price of $6.00 per share pursuant to the terms of a warrant agreement (the “Additional
Warrant”) in the same form as the Warrant. In addition, our Company agreed to issue Mr. Blech a warrant to purchase up to
4,167 additional shares of common stock at an exercise price of $6.00 per share to reflect the interest due to him under the terms
of the Note from inception to its scheduled maturity on February 13, 2011. We paid additional fees to Maxim in connection with
the conversion that included cash of $50,000 and five-year warrants to purchase up to 16,667 shares of our Company’s common
stock at $9.00 per share. We also issued a five year warrant to purchase up to 23,333 shares of our common stock for $9.00 per
share to ESP.

On August 24, 2009, we
entered into a non-exclusive agreement with ESP to assist our Company in connection with fund raising activities. Under the agreement
(as subsequently revised), we issued ESP 3,333 shares of our Company’s restricted common stock and paid it or its designees:
1) up to 8% (as amended) of the cash raised by ESP or its associates on our Company’s behalf; and 2) a five year warrant
to purchase up to one share of common stock for each 2 shares sold at the exercise price of $9.00 per share. From inception of
the agreement through September 30, 2011, ESP and its designees earned cash totaling $164,400, 3,333 shares of our common stock
and warrants to purchase up to 89,533 shares (also included in totals previously described above) of our common stock under the
agreement. No additional amounts were earned or paid since September 30, 2011 and no future sums are expected to be paid. In July
2011, Mr. Sucoff (a principal of ESP and a member of our Board of Directors) was paid $35,000 in cash for services performed on
the Company’s behalf, all of which was charged to general and administrative expenses during the year ended September 30,
2011.

On May 8, 2009, we entered
into an agreement with Patrick Kolenik to provide strategic advisory services to our Company through May 2011. Mr. Kolenik was
named to our Company’s Board of Directors in August 2011. During the year ended September 30, 2011, Mr. Kolenik was issued
7,467 shares of common stock (9,333 in fiscal 2010), and warrants to purchase up to 7,467 common shares at $15.00 per share (9,333
in fiscal 2010). Mr. Kolenik was also granted an additional warrant to purchase up to 6,667 shares of our common stock during the
year ended September 30, 2011. Noncash charges to operations during the year ended September 30, 2011 in connection with our issuance
of common shares and warrants to Mr. Kolenik totaled $65,495 ($72,155 in fiscal 2010). In May 2011, we entered into a new agreement
with Mr. Kolenik for strategic advisory services in exchange for cash consideration totaling $50,000.

60

Parent Companies.
We do not have a parent company.

Director Independence.
Because our common stock is not currently listed on a national securities exchange, we have used the
definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2)
provides that an “independent director” is a person other than an officer or employee of the company or any other individual
having a relationship which, in the opinion of the Company’s Board of Directors, would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered
independent if:

·

the director is, or at any time during the past three years was, an employee of the company;

·

the director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service);

·

a family member of the director is, or at any time during the past three years was, an executive officer of the company;

·

the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions);

·

the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the company served on the compensation committee of such other entity; or

·

the director or a family member of the director is a current partner of the company’s outside auditor, or at any time during the past three years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit.

Messrs. Blech, DeSantis, Proto, Rubinstein and Leong are the only members of the Board of Directors that
are considered independent.

Item 14 – Principal Accountant
Fees and Services

Principal Accountant Fees and Services

(1)Audit Fees

The aggregate fees during the years ended September 30, 2012 and 2011 for professional services rendered by
the predecessor auditorsfor the audit of the registrant’s annual financial statements and review of financial statements
included in the registrant’s quarterly reports and registration statements (including expenses) totaled $59,243 and $64,509,
respectively.

For the amended 10-K/A for the years
ended September 31, 2012 and 2011, our Company engaged EisnerAmper LLP and the aggregate fees for professional services
rendered was $65,000.

(2)Audit-Related Fees

There were no fees billed in each of the
last two fiscal years for assurance and related services by the predecessor auditors or EisnerAmper LLP that are reasonably related
to the performance of the audit or review of the registrant’s financial statements and are not reported under item (1).

(3)Tax Fees

No fees were billed for professional services
rendered by the predecessor auditors or EisnerAmper LLP for tax compliance, tax advice, and tax planning for the fiscal years ending
September 30, 2012 and 2011.

(4)All Other Fees

No aggregate fees were billed for professional
services provided by the predecessor auditors or EisnerAmper LLP, other than the services reported in items (1) through (3) for
the fiscal years ending September 30, 2012 and 2011.

61

(5)Audit Committee

The registrant's Board of Directors, which formerly performed the functions of the Audit Committee prior
to its establishment on November 1, 2011, previously approved the predecessor auditor’s performance of services for the audit
of the registrant’s annual financial statements for the years ended September 30, 2012 and 2011. Audit-related fees, tax
fees, and all other fees, if any, were also approved by the Board of Directors.

The registrants Audit Committee approved
EisnerAmper LLP’s performance of services on for the audit of the registrant’s amended annual financial statements
for the years ended September 30, 2012 and 2011.

Employment Agreement with William Hernandez dated November 12, 2012 (24)

10.73

Form of Subscription Agreement (25)

10.74

Form of Common Stock Purchase Warrant (25)

10.75

Form of Registration Rights Agreement (25)

11.1

Statement re Computation of Per Share Earnings (20)

14.1

Code of Business Conduct and Ethics (21)

21.1*

Listing of Subsidiaries (20)

24.1

Power of Attorney (contained in the signature page to this Annual Report)

31.1*

Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act, as amended, by Chief Executive Officer

63

31.2*

Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act, as amended, by Chief Financial Officer

32.1*

Certification pursuant to 18 U.S.C. §1350 by Chief Executive Officer

32.2*

Certification pursuant to 18 U.S.C. §1350 by Chief Financial Officer

*

Filed as an exhibit to this report

(1)

Incorporated by reference from the registrant’s Definitive Proxy Statement filed on September 21, 2007

(2)

Incorporated herein by reference to the registrant’s Form 8-K filed on October 22, 2007

(3)

Incorporated herein by reference to the registrant’s Form 8-K filed on September 22, 2005

(4)

Incorporated herein by reference to the registrant’s Form 8-K filed on June 11, 2008

(5)

Incorporated herein by reference to the registrant’s Form 10-QSB filed on August 14, 2008

(6)

Incorporated herein by reference to the registrant’s Form 10-Q filed on February 12, 2010

(7)

Incorporated herein by reference to the registrant’s Form 10-Q filed on May 14, 2010

(8)

Incorporated herein by reference to the registrant’s Form 10-Q filed on August 12, 2010

(9)

Incorporated herein by reference to the registrant’s Form 10-K filed on December 29, 2010

(10)

Incorporated herein by reference to the registrant’s Form 8-K filed on January 19, 2011

(11)

Incorporated herein by reference to the registrant’s Form 10-Q filed on February 1, 2011

(12)

Incorporated herein by reference to the registrant’s Form 8-K filed on April 26, 2011

(13)

Incorporated herein by reference to the registrant’s Form 8-K filed on May 13, 2011

(14)

Incorporated herein by reference to the registrant’s Form 8-K filed on July 21, 2011

(15)

Incorporated herein by reference to the registrant’s Form 10-Q filed on August 10, 2011

(16)

Incorporated herein by reference to the registrant’s Form 8-K filed on September 22, 2011

(17)

Incorporated herein by reference to the registrant’s Form 8-K filed on October 25, 2011

(18)

Incorporated herein by reference to the registrant’s Form 8-K filed on November 4, 2011

(19)

Incorporated herein by reference to the registrant’s Form 8-K filed on November 25, 2011

(20)

Included within the financial statements filed in this Annual Report

(21)

Incorporated herein by reference to the registrant’s Form 8-K filed on November 10, 2005

(20)

Incorporated by reference to the registrant’s form 10-K filed on December 21, 2011

(21)

Incorporated herein by reference to the registrant’s Form 8-K filed on April 4, 2012

(22)

Incorporated herein by reference to the registrant’s Form 8-K filed on July 27, 2012

(23)

Incorporated herein by reference to the registrant’s Form 8-K filed on November 1, 2012

(24)

Incorporated herein by reference to the registrant’s Form 8-K filed on November 16, 2012

(25)

Incorporated herein by reference to the registrant’s Form 8-K filed on December 6, 2012

64

SIGNATURES

Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Date: October 7, 2013

The SpendSmart Payments Company, a Colorado corporation

By:

/s/ MICHAEL R. MCCOY

Michael R. McCoy, Chief Executive Officer

(Principal Executive Officer)

Power of Attorney

We, the undersigned directors and/or officers
of The SpendSmart Payments Company, a Colorado corporation, hereby severally constitute and appoint Michael R. McCoy, acting individually,
his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this annual report on Form 10-K, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary
to be done that such annual report and its amendments shall comply with the Securities Act, and the applicable rules and regulations
adopted or issued pursuant thereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

In accordance with the requirements of
the Securities Act of 1934, this report has been signed by the following persons in the capacities and on the dates stated.

Signature

Title

Date

/s/ MICHAEL R. MCCOY

Chief Executive Officer and Director (Principal Executive Officer)

October 7, 2013

Michael R. McCoy

/s/ WILLIAM HERNANDEZ

President

October 7, 2013

William Hernandez

/s/ KIM PETRY

Chief Financial Officer and Treasurer (Principal Financial Officer

October 7, 2013

Kim Petry

and Principal Accounting Officer)

/s/ ISAAC BLECH

Director

October 7, 2013

Isaac Blech

/s/ CARY SUCOFF

Director

October 7, 2013

Cary Sucoff

/s/ PATRICK KOLENIK

Director

October 7, 2013

Patrick Kolenik

/s/ ROBERT DESANTIS

Director

October 7, 2013

Robert DeSantis

/S/ JOSEPH PROTO

Director

October 7, 2013

Joseph Proto

/s/ JESSE ITZLER

Director

October 7, 2013

Jesse Itzler

65

/s/ KA CHEONG CHRISTOPHER LEONG

Director

October 7, 2013

Ka Cheong Christopher Leong

/s/ JEROLD RUBINSTEIN

Director

October 7, 2013

Jerold Rubinstein

66

EX-21.1
2
v348581_ex21-1.htm
EX-21.1

Exhibit 21.1

The SpendSmart Payments Company, a Colorado
Corporation

Listing of Subsidiaries

The SpendSmart Payments Company, a California corporation

EX-31.1
3
v348581_ex31-1.htm
EX-31.1

Exhibit 31.1

THE SPENDSMART PAYMENTS COMPANY

CERTIFICATION OF
PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Michael McCoy, certify that:

1.

I have reviewed this Annual Report on Form 10-K/A of
The SpendSmart Payments Company;

2.

Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I
are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant issuer and have:

(a) Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;

(b) Designed such internal control over financial
reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s
disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s
internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I
have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses
in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 7, 2013

/s/ Michael McCoy

Michael McCoy

Chief Executive Officer (Principal Executive Officer)

EX-31.2
4
v348581_ex31-2.htm
EX-31.2

Exhibit 31.2

THE SPENDSMART PAYMENTS COMPANY

CERTIFICATION OF
PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Kim Petry, certify that:

1.

I have reviewed this Annual Report on Form 10-K/A of
The SpendSmart Payments Company;

2.

Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant issuer as of, and for, the periods presented in this report;

4.

The registrant issuer’s other certifying officer
and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant issuer and have:

(a) Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

(b) Designed such internal control over financial
reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness
of the registrant issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant
issuer’s internal control over financial reporting that occurred during the registrant issuer’s most recent fiscal
quarter (the registrant issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant issuer’s internal control over financial reporting; and

5.

The registrant issuer’s other certifying officer
and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant issuer’s
auditors and the audit committee of the registrant issuer’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses
in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant
issuer’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant issuer’s internal control over financial reporting.

In connection with the Annual Report of
The SpendSmart Payments Company (the “Company”) on Form 10-K/A for the period ending September 30, 2012, as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael McCoy, Chief Executive Officer
of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002,
that:

(1) The Report
fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information
contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

In connection with the Annual Report of
The SpendSmart Payments Company (the “Company”) on Form 10-K/A for the period ending September 30, 2012, as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I, Kim Petry, Chief Financial Officer of
the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report
fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information
contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.